Esma Releases Final Draft Standards for IRS Clearing
![EU flags EU flags](/sites/default/files/styles/landscape_750_463/public/import/IMG/388/276388/eu-flags1a-580x358.jpg.webp?itok=zcu1BU2T)
The European Market Infrastructure Regulation (EMIR) requires certain over-the-counter (OTC) derivatives to be centrally cleared at an authorized central counterparty (CCP). CCPs sit in the middle of derivative transactions, acting as a seller to every buyer and a buyer to every seller, and are designed to mitigate the systemic risk that can arise from trade failure between defaulting counterparties.
The pan-European regulator has announced that four basic classes of IRS will be subject to the central clearing mandate, which will be phased in gradually. These include basis swaps, fixed-to-float swaps, forward-rate agreements and overnight index swaps, denominated in euros, yen, sterling and US dollars.
In terms of timeframes, Esma has staggered the obligation depending on the profile of the counterparty, again split into four components. Clearing members will have to comply six months after the RTS enters into force, financial counterparties and alternative investment funds will have twelve months, those same bodies who typically don't use the swaps frequently will have eighteen, and finally, non-financial counterparties will be given three years.
"The finalization today of the first clearing mandates represents a significant milestone for the EU in fulfilling its [Group-of-20] commitments and promoting international convergence on derivatives market reform," says Steven Maijoor, chair of Esma. "This move to mandatory clearing will lead to significant improvements in the risk management of EU derivatives markets."
Esma has now submitted the RTS to the European Commission, which has three months to review and endorse them.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Regulation
Northern Trust offers internal fund accounting, data tools to clients
Regulations and a mandate to enhance quality and transparency in a bid to improve the investor experience are pushing buy-side firms to have more oversight of their third-party providers.
EU firms press for faster move to T+1 after smooth US rollout
Following the example set by North America, 70% of attendees at a European hearing on shorter settlement cycles favored a Q4 2027 switch to next-day settlement.
Finra clears hurdle with CAT launch, but several others remain
Two major components of the consolidated audit trail are now in place. But wrangling over the CAT’s future continues.
Bloomberg, industry bodies push back on Cboe’s proposed OEMS rule change
Some industry bodies disagree with the options exchange’s proposal to carve its Silexx OEMS out of the SEC’s definition of an exchange facility and place it into a separate business line.
GenAI: US Fed reveals its five use cases
Internal sandbox used to assess viability and risks; coding and content generation on the agenda.
Zeros and ones: Industry contemplates T+0 as the next step
With the North American transition to T+1 settlement complete, same-day settlement could be the next goalpost set, though skeptics are many.
The IMD Wrap: Déjà vu as exchange data industry weighs its options
Max highlights some of WatersTechnology’s recent reporting on data costs and capacity issues facing the options industry, and asks, haven’t we seen this before somewhere?
FRTB data quality issues persist amid shifting implementation dates
Banks are finding market and reference data challenges posed by the FRTB’s standardized model tricky, compounded by uncertainty over when the regulation will take effect.