EMIR - Generalities
Regulation n°648/2012 of July 4, 2012 on OTC derivatives, central counterparties and trade repositories (European Market Infrastructure Regulation -"EMIR") adopted by the European Union following the 2008 financial crisis entered into force on August 12, 2012. It was amended in 2019 by Regulation No. 2019/834 (EMIR Refit) in a targeted manner to improve its effectiveness and proportionality, as well as in 2020 by Regulation No. 2019/2099, which reviewed the supervision of EU and non-EU clearing houses.
EMIR has a broad territorial scope and does not simply apply where both counterparties are established within the European Economic Area ("EEA"). Thus, where a counterparty (financial or non-financial) which is established outside the EEA enters into OTC derivatives transactions with a counterparty based in the EEA, the transaction will be caught (subject to various agreements between the EU and other countries on equivalent regulatory regimes). Counterparties based outside the EEA but with an EEA entity as counterparty will therefore be indirectly affected by EMIR. Similarly, transactions between counterparties established outside the EU will be covered by EMIR if the OTC derivatives transaction has a "direct, substantial and foreseeable effect" in the EU.
The 3 main objectives of EMIR are:
- The reduction of counterparty and systemic risk;
- The reduction of operational risks;
- Enhancing transparency in the OTC derivatives markets.
In order to meet these objectives the EMIR establishes obligations with application conditions that vary according to the status of the entity.
The main obligations of EMIR
EMIR is based on the following principles:
- The obligation of central clearing of all OTC derivatives declared eligible by ESMA (“European Securities and Markets Authority”);
- The reporting obligation of all derivative transactions (whether concluded on organized markets or OTC) to be registered or recognized in trade repositories;
- The use of operational risk mitigation techniques for OTC derivative contracts that are not cleared by a central counterparty.