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European Commission Proposes Reforms to EMIR

On May 4, the European Commission (EC) proposed reforms (Proposal) to the European Market Infrastructure Regulation (EMIR). The Proposal aims to provide simpler and more proportionate rules for over-the-counter (OTC) derivatives to reduce costs and regulatory burdens for market participants without compromising financial stability.

The main proposed changes to EMIR in the Proposal relate to the following:

  • Reporting requirements: Reporting requirements are being streamlined for all counterparties. Exchange-traded derivatives will only be required to be reported by the central counterparty (CCP) on behalf of both counterparties. To reduce the burden for all non-financial counterparties (NFCs), intragroup transactions will not have to be reported if one of the counterparties is an NFC. To reduce the burden for small NFCs (an NFC below the EMIR clearing threshold), transactions between a financial counterparty and a small NFC will be reported by the financial counterparty on behalf of both counterparties. Reporting on historic transactions will no longer be required.
  • NFCs: In the future, only non-hedging contracts will be counted towards thresholds triggering the clearing obligation. While under the current rules, NFCs must clear all derivatives if they exceed the clearing threshold for one class of derivatives; the EC is now proposing that NFCs clear only the asset classes for which they have breached the clearing threshold.
  • Financial counterparties: The Proposal introduces a clearing threshold for small financial counterparties. This clearing threshold is based on the volume of OTC derivatives transactions. While all financial counterparties are required to report and collateralize OTC derivative transactions, only counterparties exceeding that threshold would be required to clear centrally.
  • Pension funds: The Proposal introduces a new three-year temporary exemption for pension funds from central clearing. This is designed to allow the various counterparties involved, including pension funds, CCPs and the clearing members, to develop a solution that enables pension funds to participate in central clearing without negatively impacting the revenues of future pensioners.

The EC states that the changes include measures that could save market participants, and in particular corporates such as energy companies or manufacturers, up to €2.6 billion in operational costs and up to €6.9 billion in one-off costs. The Proposal will become effective once the European Parliament and Council have approved them.

A copy of the Proposal is available here.

©2017 Katten Muchin Rosenman LLP

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David A. Brennand, Financial Services Lawyer, Katten Muchin Law Firm
Partner

David Brennand is a partner in the Financial Services practice in Katten Muchin Rosenman UK LLP. David provides advice to a wide range of clients active in asset management on a broad spectrum of matters pertinent to their operations, with a particular focus on advising asset managers on the structuring and ongoing operation of hedge and other alternative fund structures investing in a diverse range of asset classes.

As well as advising on fund structuring and their ongoing operation, David's expertise also extends to advising asset managers and...

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Carolyn H. Jackson, International Attorney, Katten Muchin law firm
Partner

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London
Partner

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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