Q&A

 

European Market Infrastructure Regulation (EMIR)

Submit a question on Cost to thoughtleadershipQ&A@euroccp.co.uk.

 
 
What is EMIR?

EMIR is the acronym for the European Market Infrastructure Regulation. Whilst this legislative initiative started as a directive, it quickly changed to become a regulation. This distinction is very important, as regulations are enacted into law with immediate effect and simultaneously in all 27 EU member states, allowing for no discretion over their interpretation.

 
What is the purpose of EMIR?

EMIR is part of the EU’s regulatory response to the global financial crisis and has a two-fold purpose:

  • To recognise and reinforce the role played by CCPs in mitigating certain aspects of market and counterparty risk, CCPs have been recognised as a critical resource that helped protect the stability of the financial system during the financial crisis.
  • The G20 new agenda stresses that new regulation should aim at improving transparency and regulatory oversight of over-the-counter derivatives (OTC) in an internationally consistent and non-discriminatory way.
More
Hide
What is the purpose of EMIR? – more information

In broad terms, EMIR achieves this by:

  • Clarifying the obligations to clear OTC derivatives trades through CCPs and report all derivatives trades to trade repositories.
  • Setting out the prudential and operational requirements for CCPs clearing both derivative and cash instruments.
  • Identifying and supporting the need for CCP interoperability in the cash clearing space only.
  • Setting out the prudential and operational requirements for trade repositories.
Hide
 
What is the status of the legislative process?

EMIR is currently a draft legislative proposal that was issued by the European Commission (“Commission”) in September 2010. The Parliament, which represents EU citizens, and the Council of Ministers (“Council”), which represents member states, agreed on their negotiating positions in July 2011 and October 2011, respectively. The legislative process is currently undergoing a trialogue between the Council, the Parliament and the Commission, which will lead to the final (Level 1) text of the regulation being agreed, most likely, in Q1 2012. Following the final agreement, the European Securities Markets Authority (ESMA) will begin the process of agreeing the Level 2 rules that support the Level 1 regulation.

 
Is EMIR Europe’s equivalent to the US Dodd-Frank Act?

No. EMIR is part of a broader initiative to regulate market infrastructures in Europe. There are other pieces of legislation that are currently being addressed which, as a group, are fairly similar in scope to the Dodd-Frank Act.

More
Hide
Is EMIR Europe’s equivalent to the US Dodd-Frank Act? – more information

They are:

  • MiFID II and MiFIR, which will address, among other things, changes in market structure and competition between trading venues. (MiFID was implemented in November 2007.)
  • Capital Requirements Directive IV, which respresents the transposition of the Basel III capital requirements into the European markets capital requirements.
  • Bank crisis recovery and resolution proposals (Crisis Framework), an EU framework for managing crises in the banking sector, especially for cross-border banks.
  • Central Securities Depository (CSD) Regulation, which aims to address the diversity in settlement practices across the EU and is currently in the early stages of the legislative process.
Hide
 
What are some of the current issues that are yet to be decided?
  • CCP access to trade feeds – The Parliament has deleted the clause granting trade feed access to derivative CCPs whilst the Council text has retained it. However, in the recent MiFIR text, it has been proposed that all trading venues should grant CCPs access to trade feeds, which would ensure competition in European clearing.
  • ESMA powers – Parliament favours increases in ESMA powers and authority, especially in relation to CCPs. The Council favours the responsibility remaining at the national supervisor level.
  • Extraterritoriality – Concerns continue to be expressed about guaranteed access to data held in repositories outside of a regulator's geographic jurisdiction. Extensive work on this issue continues, with resolution around equivalence and mutual recognition being the preferred option.
 
In addition to EMIR, what other legislative initiatives affecting post-trade activities are European regulators going to undertake in 2012?

By the end of 2012, we expect to see progress on the proposals for the review of MiFID (so called MiFID II and MiFIR), Market Abuse Directive (MAD), Capital Requirements (CRD IV), the Crisis Management framework for both Banks and Market Infrastructures (specifically CCPs), CSD Directive and a Securities Law Directive (SLD) among others.