EMIR Risk Mitigation Measures

The risk mitigation measures apply to parties who entered into OTC derivatives contracts, which are not cleared via a central clearing counterparty. The obligations apply depending on the qualification of the counterparties (FC+, FC-, NFC+ or NFC-) and are further described below.

Daily MTM valuation

  • FCs+ and NFCs+ are required to mark to market (MTM) their derivative portfolio on a daily basis. When a mark to market valuation is not possible, reliable and prudent marking-to-model shall be used instead.
  • This obligation came into force on 15 March 2013.

Timely confirmation

  • OTC derivative contracts must be confirmed within pre-defined timelines. EMIR specifies these timelines between 1 to 2 business days for most transactions. The number of days depends on the classification as an FC, NFC- or NFC+.
  • This obligation came into force on 15 March 2013.

Portfolio reconciliation and compression

  • Every involved party has a portfolio reconciliation obligation with respect to OTC traded derivatives which are not cleared. Counterparties are obliged to agree, before entering into an OTC derivative contract, the arrangements under which portfolios shall be reconciled.
  • Portfolio reconciliation is the process used to ensure that key transaction terms of transactions in a derivative portfolio between two counterparties are in agreement. Parties shall agree on the arrangements under which the portfolios shall be reconciled.
    Reconciliation frequency:
    For FC (both FC- and FC+) and NFC+:
    - Daily if ≥ 500 contracts;
    - Weekly if 51 ≤ contracts ≤ 499;
    - Quarterly if ≤ 50 contracts.
    For NFC-:
    - Quarterly if > 100 contracts;
    - Yearly if ≤ 100 contracts.
  • FCs and NFCs which have more than 500 non-centrally cleared OTC derivative contracts outstanding must have procedures in place to analyze the possibility to conduct a portfolio compression exercise at least twice a year.
  • For any further questions with regard to portfolio reconciliation, please contact: regulatoryvaluations@rabobank.com
  • These obligations came into force on 15 September 2013.

Dispute resolution

  • Parties are obliged to agree on detailed procedures to identify, record and resolve disputes. Via these procedures the length of time for hich the dispute remains outstanding, the counterparty and the amount which is disputed must be recorded. A specific process must be in place for resolving disputes that have been outstanding for more than five business days.
  • Financial counterparties shall report to their competent authority any disputes between counterparties relating to an OTC derivative contract, its valuation or the exchange of collateral for an amount or a value higher than EUR 15mln and outstanding for at least 15 business days.
  • This obligation came into force on 15 September 2013.

Margin requirements

  • FCs+ and NFCs+ will in principle fall under the margin requirements (exchange of Initial and Variation Margin) under EMIR.
  • Subject to certain conditions being met, intragroup transactions are exempt from this obligation.
  • FCs+ and NFCs+ may apply as an alternative to collateralization additional retention of capital.
  • This obligation will be phased in with a final deadline of September 2020.

For more information about EMIR Risk Mitigation Measures, please visit the Q&A section.

Overview of the Risk Mitigation Measures

Requirement Date of application FC (both FC+ and FC-) NFC+ NFC-
Daily mark-to-market 15/03/2013 Yes Yes No
Timely confirmation 15/03/2013 T + 1 T + 1 T + 2
Portfolio reconciliation 15/09/2013 Every day, week, or quarter depending on portfolio size Every quarter or year depending on portfolio size
Portfolio compression 15/09/2013 Applicable if > 500 contracts outstanding
Dispute resolution 15/09/2013 Procedures in place + reporting to competent authority Procedures in place -
Exchange of collateral (IM and VM) Phase in, final deadline sept 2020 Yes No No