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Finance

Derivatives / EMIR

The European market infrastructure regulation (EMIR) lays down rules on OTC derivatives, central counterparties and trade repositories.

What the EU is doing and why

Role of derivatives

Derivatives play an important role in the economy, but they also bring certain risks. These risks were highlighted during the 2008 financial crisis, when significant weaknesses in the OTC derivatives markets became evident.

In 2012 the EU adopted the European market infrastructure regulation (EMIR). The aims were to

  • increase transparency in the OTC derivatives markets
  • mitigate credit risk
  • reduce operational risk

Enhancing transparency

EMIR introduces reporting requirements to make derivatives markets more transparent. Under the regulation

  • detailed information on each derivative contract has to be reported to trade repositories and made available to supervisory authorities
  • trade repositories have to publish aggregate positions by class of derivatives, for both OTC and listed derivatives
  • the European Securities and Markets Authority (ESMA) is responsible for surveillance of trade repositories and for granting and withdrawing accreditation

Mitigating credit risk

EMIR introduces rules to reduce the counterparty credit risk of derivatives contracts.  In particular

  • all standardised OTC derivatives contracts must be centrally cleared through CCPs
  • if a contract is not cleared by a CCP, risk mitigation techniques must be applied
  • CCPs must comply with stringent prudential, organisational and conduct of business requirements

Reducing operational risk

The regulation also requires market participants to monitor and mitigate the operational risks associated with trade in derivatives such as fraud and human error, for example by using electronic means to promptly confirm the terms of OTC derivatives contracts.

Equivalence decisions under EMIR

    Definitions

      Policy making timeline

      1. 7 December 2022
        Legislative package - Capital markets union
      2. 18 October 2022
        Legislation

        As highlighted in the 2022 State of the Union address, energy companies nowadays are facing severe problems with liquidity in electricity futures markets, which is putting the proper functioning of our energy system at risk. In this context, the Commission has adopted a measure on the clearing threshold and adopted in principle a measure on the eligibility of collateral.

      3. 23 November 2016
        Report

      Relevant legislation