EMIR swap clearing obligation in June 2016
The first technical standards on the clearing obligation under EMIR were published in the Official Journal on 1 December 2015 which gives them legal force and establishes the first application dates regarding the clearing obligation for certain classes of interest rate swaps.
The first EMIR swap clearing obligation requires EU firms to clear the below-mentioned OTC derivatives through CCPs. ESMA’s Public Register lists the classes of OTC derivatives covered by the clearing obligation and those CCPs authorised to clear them.
The Regulation establishes four categories of counterparties:
- In Category 1 fall the the counterparties which, on the date of entry into force of this Regulation (i.e. 21st Dec 2015), are clearing members for at least one of the classes of OTC derivatives mentioned above and of at least one of the CCPs authorised or recognised before that date to clear at least one of those classes. On 21st June 2016 the clearing obligation takes effect for the counterparties in Category.
- In Category 2 fall the financial counterparties and alternative investment funds that are non-financial counterparties whose aggregate month-end average of outstanding gross notional amount of non-centrally cleared derivatives for January, February and March 2016 is above EUR 8 billion. On 21st December 2016 the clearing obligation takes effect for Category 2.
- In Category 3 fall the financial counterparties and alternative investment funds that are non-financial counterparties whose aggregate month-end average of outstanding gross notional amount of non-centrally cleared derivatives for January, February and March 2016 is below EUR 8 billion. On 21st June 2017 the clearing obligation takes effect for Category 3.
- In Category 4 fall all other counterparties that do not belong to Category 1, Category 2 or Category 3. The clearing obligation takes effect on 21st December 2018.
The forthcoming EMIR clearing obligation covers the following classes of OTC interest rate.
- Basis swaps classes (float-to-float swaps)
| ID | Type | Reference Index | Settlement Currency | Maturity | Settlement Currency Type | Optionality | Notional Type |
|---|---|---|---|---|---|---|---|
| A.1.1. | Basis | Euribor | EUR | 28D-50Y | Single currency | No | Constant or variable |
| A.1.2. | Basis | LIBOR | GBP | 28D-50Y | Single currency | No | Constant or variable |
| A.1.3. | Basis | LIBOR | JPY | 28D-30Y | Single currency | No | Constant or variable |
| A.1.4. | Basis | LIBOR | USD | 28D-50Y | Single currency | No | Constant or variable |
- Fixed-to-float interest rate swap classes (plain vanilla)
| ID | Type | Reference Index | Settlement Currency | Maturity | Settlement Currency Type | Optionality | Notional Type |
|---|---|---|---|---|---|---|---|
| A.2.1. | Fixed-to-float | Euribor | EUR | 28D-50Y | Single currency | No | Constant or variable |
| A.2.2. | Fixed-to-float | LIBOR | GBP | 28D-50Y | Single currency | No | Constant or variable |
| A.2.3. | Fixed-to-float | LIBOR | JPY | 28D-30Y | Single currency | No | Constant or variable |
| A.2.4. | Fixed-to-float | LIBOR | USD | 28D-50Y | Single currency | No | Constant or variable |
- Forward rate agreement classes
| ID | Type | Reference Index | Settlement Currency | Maturity | Settlement Currency Type | Optionality | Notional Type |
|---|---|---|---|---|---|---|---|
| A.3.1. | FRA | Euribor | EUR | 3D-3Y | Single currency | No | Constant or variable |
| A.3.2. | FRA | LIBOR | GBP | 3D-3Y | Single currency | No | Constant or variable |
| A.3.3. | FRA | LIBOR | USD | 3D-3Y | Single currency | No | Constant or variable |
- Overnight index swaps classes
| ID | Type | Reference Index | Settlement Currency | Maturity | Settlement Currency Type | Optionality | Notional Type |
|---|---|---|---|---|---|---|---|
| A.4.1. | OIS | EONIA | EUR | 7D-3Y | Single currency | No | Constant or variable |
| A.4.2. | OIS | FedFunds | USD | 7D-3Y | Single currency | No | Constant or variable |
| A.4.3. | OIS | SONIA | GBP | 7D-3Y | Single currency | No | Constant or variable |
ESMA’s next steps
The next clearing obligations will cover index credit default swaps as well as interest rate swaps denominated in NOK, PLN and SEK, regarding which ESMA has submitted draft regulatory technical standards to the Commission in October and November 2015 respectively. The press release issued by ESMA on 1st Dec 2015 is 2015/1798 Press release.
What is the impact?
The impact is that the financial companies should carefully decide which of the authorised CCPs are the best option to comply with the legislation. Only certain CCPs clear certain classes of OTC interest rate. Another aspect in the decision-making process is the increased costs for clearing once the clearing obligation come into force compared to the fees that currently apply.
For further information please contact us at office@emirreporting.eu.