Requirements of the EMIR Regulation

What is EMIR?

The European Market Infrastructure Regulation (hereinafter — the EMIR) — a set of European normative documents about the transactions with derivatives based on the Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties (CCPs) and trade repositories (TRs). The EMIR normative documents are available through the link: eur-lex.europa.eu

EMIR refers to transactions with all derivatives, the complete range of which is listed in the Directive 2004/39/EC Annex I. Section C. Articles 4 – 10, available through the link: eur-lex.europa.eu

Since November 1, 2017, for making transactions with any derivative financial instruments, legal entities, regardless of their country of residence, need LEI number.

The main obligations under EMIR are:

  • Reporting to trade repositories;
  • Central Clearing for OTC derivatives;
  • Application of risk mitigation techniques.

Reporting

Under the EMIR standards, legal entities — the EU residents that conclude transactions with derivatives — need to report them to one of the trade repositories.

Trade repositories are special entities that collect, process, analyze, store and transfer information about transactions with derivatives to regulatory authorities.

It is required to report a transaction to the trade repository on the next day following the day it was entered into / changed / or terminated (T+1, where T is the date of entering into / change / or termination of a transaction).

Detailed information about the technical standard and regularity of reporting the transactions to the trade repository under EMIR is described in the Regulation No 1247/2012, available through the following link: eur-lex.europa.eu

The EMIR allows a party to the transaction to delegate the reporting task to the repository to its counterparty or third party.

For reporting purposes legal entities — the EU residents — must obtain a LEI code.

What is LEI code?

The LEI (Legal Entity Identifier) code is a unique 20-digit, alphanumeric code that identifies each legal entity participating in financial markets as one of the parties to a transaction.

It is possible to obtain the LEI code from particular registration authorities.

The current list of endorsed authorities for registration of the LEI codes is available here: www.leiroc.org

The LEI code registration procedure may take up to two weeks. A charge may be collected for registration and maintenance of the LEI code.

We are ready to assist our clients in obtaining the LEI code as well as in meeting other EMIR requirements.

Risk mitigation techniques

The risk mitigation techniques include:

  • timely confirmation of transactions;
  • portfolio compression;
  • dispute resolution.

Clearing obligations

Under the EMIR standards, clients will have to clear their OTC derivatives centrally by a CCP in relation to speculative transactions if the face amount of transactions exceeds the clearing threshold.

The clearing threshold, upon which the clearing obligation enters into effect, is determined by the European Securities and Markets Authority (ESMA). The threshold is set individually for each class of assets and is reviewed on a regular basis.

Effective clearing thresholds per asset classes are indicated on ESMA website www.esma.europa.eu

Those derivative contracts entered into in order to reduce risks relating to the commercial activity are excluded from the calculation of the clearing threshold.

More detailed information about meeting the requirements of the EMIR Regulation is available in the document “Questions and Answers” on the ESMA organization website: www.esma.europa.eu