European Markets Infrastructure Regulation – EMIR

Please note that this publication only serves to provide general back-ground information, is not necessarily complete or correct, and does not contain individual, legal or other advice. The EMIR regulations and clearing obligations might impact OTC derivatives business and your relationship with us so we urge you to inform yourself on this subject and obtain the necessary advice.

What is EMIR?

The European Markets Infrastructure Regulation (EMIR) is a European regulation regarding over-the-counter (OTC) derivatives, central counterparties and trade repositories. EMIR is set up following the commitment announced by the Group of 20 (G20) in 2009 to increase regulation on non-centrally cleared derivatives with the objective to increase the stability (mitigation of systemic risk and transparency) within global derivative markets.

EMIR is the European part of the worldwide effort to reduce counterparty and operational risk in the OTC derivatives market. This regulation entered into force on 16 August 2012 and its obligations gradually took effect from 2013 onwards.

Who is impacted by EMIR?

  • Financial and non-financial counterparties that are active in the (OTC) derivatives markets;
  • Counterparties established in the European Economic Area (EEA), or with direct, substantial and foreseeable effect within the EEA;
  • Non-EEA counterparties which enter into (OTC) derivatives contracts with a counterparty established in the EEA

Client Classification and Obligations

EMIR recognizes a number of counterparties classifications. The effects, obligations and responsibilities to comply with EMIR vary according to the classification of an entity. To optimize the understanding of this new legislation among our clients Rabobank has created this website which contains background and relevant information about EMIR.

What are the counterparty categories and obligations under EMIR?

EMIR recognizes the following counterparties classifications:

  • Financial counterparties (FC)
  • Non-financial counterparties (i.e. parties that are not FCs including private individuals if they act for commercial purposes) above the following threshold (NFC+):
    - EUR 1bn for credit and equity derivatives (gross notional amounts)
    - EUR 3bn for IR, FX and all other derivatives (gross notional amounts)
    - OTC derivatives position is calculated as a rolling average over 30 working days
    - OTC transactions entered into with the purpose of hedge do not count towards the notional amounts
    - Non-financial counterparties below the above defined threshold (NFC-):
  • Non-financial counterparties below the above defined threshold (NFC-):
  • EMIR further distinguishes Exempted or partially exempted entities as well as Third Country Entities (TCE). The exact EMIR provisions that apply to these counterparties (if any), depend on the specific activities of the entity and/or its location
    - Exempted Entities are exempted from clearing and reporting obligations. These entities include members of the European System of Central Banks (ESCB) and other Member States’ bodies performing similar function, EU public bodies charged with the management of public debt, The Bank for International Settlements, and 3rd Country Central banks/ public bodies charged with management of public debt (subject to the Commission including these entities to the exclusion)
    - Partially Exempted Entities are subject to reporting obligation. These entities include multilateral development banks, public sector entities if owned by central governments and have explicit guarantee arrangements provided by central governments, the European Financial Stability Facility and the European Stability Mechanism
  • Other categories apply in respect of the clearing obligation. Please refer to the section dealing with the clearing obligation.

How to prepare?

  • Clients located in the European Economic Area (EEA)
    In 2014 we have concluded EMIR documentation with a majority of our client base located in the EEA. In case you are an existing client trading OTC-derivatives with us we have contacted you to sign additional documentation. EMIR compliance for new customers will be arranged through the formal (ISDA) documentation process between your organization and Rabobank
  • Clients located outside the European Economic Area (EEA
    Depending on further regulatory guidance, derivatives documentation between Rabobank and Clients may have to be amended state in the near future as one of the parties (i.e. Rabobank) in existing derivatives transactions is located in the EEA, and thus affected by EMIR regulation. Rabobank has drafted a documentation package to establish EMIR compliance for Large Corporate Clients and Financial Institutions. Please contact emir.documentation@rabobank.nl to receive this package in case you have not receive it yet.

What are the obligations under EMIR?

There are three main obligations under EMIR that may impact you:

Central Clearing for FC and NFC+
This is an obligation to clear certain classes of OTC derivatives through a central counterparty. In 2016, the clearing obligation is especially relevant for clearing members, FCs and NFCs+ with average gross notional outstanding over a 3-month period exceeding EUR 8bn OTC derivatives contracts

Risk Mitigation Measures
The risk mitigation measures apply to OTC derivatives and include timely confirmation, dispute resolution, portfolio reconciliation, portfolio compression, daily MtM and exchange of collateral. These obligations apply in principle to all counterparties (FCs, NFC+ and NFC-) with however some differences (frequency for example) depending on the qualification of the parties.

Reporting
In order to comply with EMIR reporting regulations, FCs as well as NFCs and exempted entities will have to report derivative contracts (concluded, modified or terminated) to a Trade Repository (TR). This obligation applies to both cleared and non-cleared derivatives, exchange-traded as well as OTC derivatives.

The Reporting obligation does not apply to non-EEA counterparties, but in case you trade OTC derivatives with EEA counterparties (such as Rabobank), the EEA entity may still have to disclose information regarding the non-EEA counterparty to comply with its own reporting obligation.

EMIR entered into force on 16 August 2012 and its obligations gradually have taken effect from 2013 onwards. The effects, obligations and responsibilities of EMIR vary according to classifications of an entity.

emir-tabel-1

Q&A for Large Corporates & Institutional Clients

A number of EMIR obligations are already in force, whilst the rest are still being finalized by the European Securities and Markets Authority (ESMA). We have come up with a checklists for general groups, including FC and NFC in EEA and non-EEA regions. We have tried to answer the most common questions in the Q&A17. Should you require additional information, please visit directly the ESMA website (see Relevant links on the right-hand side).

Rabobank Information

Coöperatieve Rabobank U.A (formerly known as Coöperatieve Raiffeisen-Boerenleenbank B.A.

Emir classification FC
Emir Clearing Category Category 1
Legal Entity Identifier (LEI) DG3RU1DBUFHT4ZF9WN62
Rabobank is able to clear OTC transactions with the following EU authorized CCP’s Rates:
LCH. Clearnet Limited
EUREX Clearing AG