European Market Infrastructure Regulation (EMIR)
From G20 to EMIR: the importance of CCPs for the safety and efficiency of the financial markets
CCPs are financial market infrastructures that reduce and manage the counterparty risks in financial markets. In 2008, the bankruptcy of Lehman Brothers, a bank very active in OTC derivatives, demonstrated the ability of CCPs to successfully manage a default and prevent contagion between market participants. According to the analysis of the European Commission, the opacity of the market and the lack of adequate risk management ‘prevented, on the one hand, other market participants from knowing exactly what the exposures of their counterparties were to these three entities (the events in the credit default swaps market after Lehman’s bankruptcy are a point in case), which resulted in mistrust and the drying up of liquidity in the inter-bank money market. It also prevented regulators from being able to identify early the risks building up in the system, the extent to which risks were being concentrated in a handful of institutions and consequently the effects that their default would have for financial stability.’ (‘Ensuring efficient, safe and sound derivatives markets’, European Commission staff working paper, COM(2009) 332 final)
The G20 leaders agreed to improve the OTC derivatives market through the following measures:
- All standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and
- Cleared through central counterparties by end-2012 at the latest.
- OTC derivative contracts should be reported to trade repositories.
- Non-centrally cleared contracts should be subject to higher capital requirements.
In the EU, the following steps still need to be taken in order to fully implement the European Market Infrastructure Regulation (EMIR):
- Enforcement of the clearing mandate in the EU (currently expected for the beginning of 2016 for certain asset classes)
- Finalisation of the equivalence decisions for different jurisdictions and recognition of third-country CCPs
In line with the EMIR provisions, the European Commission started the review of the legislation in 2015.
30 Mar 2016 EACH paper – EACH views on Portfolio Margining – Additional subjects and evidence
07 Aug 2015 EACH response – European Commission consultation on EMIR review
Public authorities publications
23 Nov 2016 European Commission – European Commission proposal on EMIR review
05 Nov 2015 ESMA – Consultation paper on indirect clearing under EMIR
21 May 2015 European Commission – Publication of the European Commission consultation on the EMIR review
30 Oct 2014 European Commission – Equivalence of the regulator framework of Australia CCPs
04 Sep 2014 European Commission – Equivalence of the regulator framework of Hong Kong CCPs
04 Jun 2013 European Commission – Equivalence of the regulator framework of Singapore CCPs
28 May 2013 ESMA – Guidelines on the implementation of the CPMI-IOSCO PFMI (Level II)
19 Dec 2012 ESMA – Guidelines for interoperability arragements (Level II)
04 Jul 2012 ESMA – Guidelines on written agreements between members of CCP colleges (Level II)
23 Feb 2013 European Commission – Delegated regulation on regulatory technical standards on colleges for CCPs (Level II)
23 Feb 2013 European Commission – Regulatory technical standards on capital requirements for central counterparties (Level II)
23 Feb 2013 European Commission – Regulatory technical standards on indirect clearing arrangements and the clearing obligation (Level II)
23 Feb 2013 European Commission – Regulatory technical standards on requirement for central counterparties (Level II)
23 Feb 2013 European Commission – Implementing technical standards to be maintained by CCPs (Level II)
27 Jul 2012 European Commission – EMIR framework legislation (Level I)
24 Sep 2009 FSB – Report to G20 leaders on improving financial regulation
25 Sep 2009 G20 – Leaders’ statement the Pittsburg summit