ESMA seeks comment on swaps rules
The European Securities and
Markets Authority (ESMA) has put out for consultation the detailed rules that will
accompany the European market infrastructure regulation (EMIR), the region’s
reform package for OTC derivatives trading.
The consultation on the rules,
also known as technical standards, will run until 5 August and follows an
initial discussion paper released by the European securities watchdog in
As per a 2009 G-20 agreement, EMIR will standardise OTC derivatives instruments where possible so
they can be traded on exchange-like platforms and centrally cleared. The rules
also call for the creation of trade repositories that collect OTC derivatives
The ESMA paper includes a
framework for deciding when swaps should be deemed eligible for clearing, risk
mitigation requirements for OTC derivatives that are not centrally cleared, and organisational conduct of business and prudential requirements for central counterparties
For determining when
derivatives should be eligible for clearing, ESMA will work with CCPs to
identify suitable instruments based on liquidity, contract terms and
availability of fair pricing information. But the body has stated “no CCP will be
forced to clear contracts that it is not able to manage”.
Clearers will also be afforded
some discretion when deciding what to accept as collateral, which it said would
allow CCPs to provide for a more conservative approach if desired.
The paper also includes
proposals on the reporting of derivatives transactions to trade repositories
and the criteria CCPs need to satisfy before being recognised under the new
“OTC derivatives impact both
financial markets and the real economy but have not been subject to regulatory
requirements. This absence has resulted in negative consequences for financial
markets, investors and the real economy,” said ESMA chair Steven Maijoor. “The
draft technical standards developed by ESMA set out the measures for the implementation
of the regulatory framework established under EMIR. These measures will ensure
that EMIR’s objectives of reducing risks arising from OTC derivatives,
improving transparency and ensuring sound and resilient central counterparties
will be applied in practice.”
paper will be complemented by a public hearing to be held in Paris on 12 July.
After the 5 August deadline, ESMA will then have until 30 September to deliver
the technical standards to the European Commission for final approval. EMIR is
expected to take effect from the start of next year.