ESMA publishes 12th version of its EMIR Q&As


ESMA has published its 12th version of the EMIR Q&As on 31 March 2015. This latest publication principally deals with the application of the clearing exemption.

This will only impact reporting in respect of the following:

  • Sovereign wealth funds will fall within EMIR as Alternative Investment Funds and will therefore have a reporting obligation.
  • Where an obligation to clear arises and therefore clearing details must be reported.
  • Where an exemption from the clearing obligation is not granted.
  • Where a trade is novated for clearing.

Further details of each update can be found below:

OTC Q6(g) Intragroup exemption from the clearing obligation:

Where counterparties apply to two separate jurisdictions, both Competent Authorities must approve the exemption otherwise it should not be relied upon. The counterparties should wait for responses from both CAs before placing reliance on the exemption.

OTC Q13(d) Sovereign wealth funds established in third countries:

“Sovereign wealth fund will qualify as financial counterparty under EMIR where it meets the definition of an AIF and it would be subject to Directive 2011/61/EU (AIFMD) if it was established in the Union. However, where a sovereign wealth fund does not meet the definition of an AIF and is out of scope of the AIFMD, such a sovereign wealth fund shall be treated as non-financial counterparty in accordance with Article 10 of EMIR.”

OTC Q13(d) Pension scheme arrangements:

Where pension scheme arrangements, as defined in Article 2 (10) EMIR, are granted an exemption under Article 89 and outsources management of its assets to a third party, the exemption will still apply. The manager should meet the following criteria in managing the exempt assets:

  1. Does not comingle exempt and non-exempt assets.
  2. The derivative contract clearly identifies that it is concluded for an exempt pension scheme under Article 2 (10) and Article 89 (1 & 2) (as appropriate).
  3. Keep the assets and records in a way to allow regulators to check that the derivative contract reduces investment risks directly related to the financial solvency of the pension scheme.

OTC 17(b) Frontloading period:

Contracts entered into during the clearing frontloading period do not need to be cleared, where the intragroup exemption is granted before the clearing obligation takes effect.

OTC Q20 Clearing obligation regarding novations:

All types of trade novations are covered by the clearing obligation. The example ESMA provides is where a counterparty (being a CCP or another counterparty) steps into the trade and become a new counterparty to the trade. They will therefore be subject to the clearing obligation.

OTC Q21 Guarantees in respect of third country contracts:

The responsibility under Art 2.1 of RTS for guarantees in respect of Third Country contracts will lie with the EU guaranteeing party. As such the EU entity will need to make the arrangements to have the required information to assess whether the guarantee should be deemed to have a significant and material effect in the EU.

OTC Q22 Guarantees in respect of third country contracts:

Where multiple guarantees are being provided they should be considered in together where the guarantees are provided to the same entity, as the guarantor EU entity will be subject to a single entity’s risk.

OTC Q23 (a) Guarantees in respect of third country contracts:

Article 2 RTS on Third Country contracts does not apply to contracts entered into before the RTS comes into force.

OTC Q23 (b) Guarantees in respect of third country contracts:

Article 2 RTS on Third Country contracts does apply to contracts entered into after the RTS comes into force but guarantees were given by an EU entity prior to the effective date of the RTS.

CCP Q6 (f) Under Article 14 of EMIR – Authorisation of a CCP:

“CCPs cannot be authorised to offer services preventing the interposition of the CCP between clearing members, i.e. preventing clearing members to clear contracts with other clearing members.”

CCP Q8 (n) Article 39 of EMIR – Segregation and portability:

Repayment of excess margin to clients under auto repay arrangements.

According to article 39(6) of EMIR, “When a client opts for individual segregation any margin in excess of the client’s requirement shall be posted to the CCP. As such, any excess collateral allocated to an individually segregated account must either be maintained at the CCP in accordance with article 39(6) or returned to the client.” ESMA go on to say that CCPs should offer clearing members the possibility of switching off auto pay as long as the CCP is permitted to hold the holding excess margin.