The European Market Infrastructure Regulation (EMIR)
About a year ago we informed our customers about certain changes in the European Market Infrastructure Regulation, EMIR, following the revision of EMIR called Refit, which related to the requirement in relation to clearing thresholds (see summarized information below). Now it is time for the next step in the reform of EMIR.
As of 18 June 2020, new rules apply regarding the reporting of OTC derivatives to trade repositories. The new rules implies that financial counter-parties (FC), e.g. Nordea, will be solely responsible and legally liable for reporting the details of OTC derivative contracts that have been concluded with non-financial counter-parties that are not subject to the clearing obligation (NFC-). Currently many NFC- have chosen to delegate its reporting obligations to its FC counter-party but they have still remained liable for being compliant with the EMIR reporting rules.
These rules apply only for OTC derivatives. Derivatives listed and traded on a trading venue is not subject to the new rules and any reporting performed on behalf of a client is done on a delegated basis (voluntary delegation).
This means that if you are classified as an NFC-, Nordea will from 18 June perform EMIR reporting on your behalf in accordance with the new mandatory reporting rules (mandatory delegation), although the processes in the existing reporting agreement will continue to apply.
If your EMIR classification changes from NFC- to NFC+ (non-financial counter-party that is subject to the clearing obligation), then you are responsible and liable to perform the reporting of OTC derivatives, but such reporting can still be delegated to Nordea if there is a reporting agreement in place (voluntary delegation). It is therefore important that you inform Nordea about any change in your EMIR classification. This applies also if your classification should change from NFC+ to NFC-.
For those NFC-’s for which Nordea currently report on a voluntary basis, Nordea will assume that it will continue to report on a mandatory delegated basis. In that case you don’t need to do anything. If you at some point in time wish to perform the EMIR reporting yourself, you must inform Nordea of that intention.
If you are an NFC- and is currently performing the reporting yourself, you can choose to continue to do so. In this case you are responsible and liable to comply with the reporting obligations. If you at some point in time should wish Nordea to perform the reporting you must inform Nordea of that intention and provide such information that Nordea may request to perform the reporting.
If you are an FC (financial counter-party) and we currently report on your behalf on a delegated basis, we will continue to do so going forward and you don’t need to do anything.
We would also like to remind you of the fact that since 18 June last year an NFC- must – at 12-months intervals – calculate its aggregate average month-end position in OTC derivatives over 12 months, at group level. Hedging transactions are excluded from the calculation. If the group exceeds any of the clearing thresholds the client is subject to the clearing obligation but is limited to the asset classes where an NFC exceeds the clearing thresholds. Further information can be found here, as well as in more detail below.
Clearing threshold calculation and clearing obligations for NFCs
EMIR classifies OTC derivatives non-financial counter-parties into those that exceed the clearing threshold (NFC +) and other non-financial counter-parties (NFC-). The clearing thresholds are set at a gross notional value corresponding to:
- for credit derivatives contracts, EUR 1 billion
- for equity derivatives contracts, EUR 1 billion
- for interest rate derivatives contracts, EUR 3 billion
- for FX derivative contracts, EUR 3 billion, and
- for commodity and other OTC derivative contracts, EUR 3 billion.
Going forward you should – at 12-month intervals – calculate your aggregate average month-end position over 12 months at group level rather than on a rolling 30 working day average. Hedging transactions are excluded from the calculation.
Under EMIR Refit, the scope of the clearing obligation for NFCs is also limited to the assess classes where an NFC exceeds the clearing thresholds.
You may refrain from making a calculation; this, however, automatically subjects you to the clearing obligation in all asset classes. Accordingly, to benefit from not being in scope for the clearing obligation, the calculation must be made in due course of the EMIR Refit effective date.
EMIR Refit does not contain any specific provisions on how the calculation should be documented, but it is recommended that the calculation and results are documented.
Clearing threshold calculation and clearing obligations for FCs
With regard to financial counter-parties EMIR Refit introduced a differentiation between larger and smaller FCs (FC+ and FC-). The above described rules on clearing thresholds and calculation is in principle applied to FCs as well, where FCs that do not cross any of the thresholds are not subject to the clearing obligation (FC-). There are, however, two important differences: for FCs there is no exclusion for hedging transactions and if an FC- exceeds any of the thresholds, then it becomes subject to the clearing obligation in all asset classes.
Notification of clearing obligation
If the result of the calculation exceeds the threshold in any asset class, this must be notified to the European Securities and Markets Authority (ESMA) and the local financial supervisory authority. If you refrain from conducting the calculation, this decision must also be notified to the same bodies. The clearing obligation becomes effective four months after the notification has been made. For the purpose of notifying ESMA when counter-parties exceed or no longer exceed the clearing thresholds this notification template should be used and sent to EMIRemail@example.com
Notification of your classification to Nordea
You are obligated under EMIR and EMIR Refit to inform you counter-parties of your EMIR classification. Accordingly, we kindly ask you to commit the information regarding your classification via this form: nordeamarkets.com/emir-classification/
If you have any question related to EMIR it can be sent to firstname.lastname@example.org
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