Trade bodies take first step in easing EMIR implementation

A new EU regulatory implementation handbook will be unveiled next week, initially helping firms comply with the European market infrastructure regulation, Europe’s new framework for swaps trading.

A new EU regulatory implementation handbook will be unveiled next week, initially helping firms comply with the European market infrastructure regulation (EMIR), Europe’s new framework for swaps trading.

“We expect to have the first stage of the handbook available online from next week,” Anthony Belchambers, CEO of the Futures and Options Association (FOA), told “As well as the high level requirements for EMIR, it will also tackle the associated draft technical standards. Our aim is to make this complex area of regulatory change as navigable as possible among the different firms represented by each association.”

In addition to the FOA, the European Federation of Energy Traders, the Wholesale Markets Brokers’ Association and the Association of Private Client Investment Managers and Stockbrokers are also involved in the handbook’s creation. The trade associations have also enlisted the help of global law firm Clifford Chance, which will play a core role in the handbook’s development, and audit and tax advisory firm KPMG, which will cover operational issues.

As well as EMIR, the handbook will also cover MiFID II, the Market Abuse Directive (MAD) and the market integrity rules in the Regulation on Energy Market Integrity and Transparency, including supporting guidance and technical standards developed by the European Securities and Markets Authority (ESMA) and the Agency for the Cooperation of Energy Regulators.

Where possible, EMIR will standardise derivatives products so they can be traded on exchange and be centrally cleared. But this requires substantial changes to business practices and workflow across buy-side firms, investment banks and market infrastructure providers. Belchambers added that the associations were also mulling producing an annex for Dodd-Frank, the US approach to OTC derivatives reform.

MiFID II and its accompanying regulation provides the framework for OTC derivatives trading venues – called organised trading facilities – and will increase transparency obligations across a number of asset classes, including fixed income, while MAD will place stricter punishments on those found guilty of market abuse.

Included within the handbook’s scope will be issues related to wholesale and retail products and services, ranging from trading in cash equities to FX and commodity derivatives, implementation checklists and guidance, and standard disclosure documents to help meet the new rules. It will also be supported by a series of workshops – the first of which will be held in September and October this year – that will cover high-level regulatory issues and include heat-maps that will guide firms on the early steps they are able to take towards implementation.

ESMA hearing 

In helping the industry to further prepare for the introduction of EMIR, ESMA is holding a public hearing in Paris today as part of the establishment of technical standards that will accompany the regulation.

The hearing closely follows a consultation paper on the technical standards released on 25 June, which presents draft proposals on 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 (CCPs).

Belchambers, who will be attending today’s meeting, said he is encouraged at the way the securities watchdog has used industry feedback thus far.

“ESMA has picked up on comments from the industry, which is a positive sign, and is also cognisant that this needs to go further, which includes soliciting more buy-side feedback,” he said. “It is also encouraging that the cost burden of clearing swaps has been recognised throughout the ESMA consultation paper, but there is still an awful lot of detail to work though.”

Belchambers believed the new OTC derivatives regulations would lead to a tipping point, where institutional investors decide not to hedge certain risks with OTC derivatives because of the greater costs associated with clearing.

“There has to a balance in achieving policy objectives and ensuring that the associated cost aren’t so high that they undermine the objectives,” he said.