As the European Securities and Markets Authority (ESMA) collates feedback to its request for responses to its important review of the European Market Infrastructure Regulation (EMIR) Refit thresholds by asset class, and the definition of hedging (as opposed to trading) for excluding financial transactions from the threshold’s calculation, corporate treasurers should continue to be cautious. They must also ensure they read and understand the ESMA EMIR Q&A in due course and the EC’s report later this year. EMIR is now accepted by all and, in general, respected. Changing rules may cause trouble if they become even more restrictive.
ESMA has recently decided to review the thresholds fixed for each asset class for EMIR obligations of collateralization. This issue of the clearing threshold for NFCs ( non-financial counterparties) is an important one. It is vital to bring it to the attention of treasurers. ESMA has launched a consultation to review the current clearing thresholds of OTC (over-the-counter) derivatives for financial counterparties (FCs) and NFCs under EMIR Refit. This exercise is mandated under EMIR Refit to periodically assess the appropriateness of thresholds and update these if necessary. In addition, this report also evaluates the impact Brexit has had on OTC derivatives and clearing thresholds. The deadline for feedback was set for 19 January 2022. In its assessment of the existing clearing thresholds, ESMA expressed to be overall satisfied with the feedback. In particular:
In relation to consequences drawn from Brexit, ESMA seeks to assure clarity and stability despite the change of status of UK markets. ESMA is searching for solutions beyond equivalence decisions – since third-country markets are not recognized under the EMIR regime and trades therefore contribute to the overall OTC position towards the clearing threshold. In this context, ESMA expresses openness towards exploring solutions and alternatives to the lack of an equivalence decision (Article 2a of EMIR) to alleviate concerns. It also highlighted the importance of maintaining regulatory stability – to be ensured by minimizing market disruption. For this aim, ESMA is collecting examples and supporting data on practical issues related to the calculation of thresholds including fungible exchange traded derivatives (ETDs) and OTC derivatives, transactions that do not qualify as hedging and views on the functioning of the EMIR framework.
In addition, ESMA is seeking feedback on the need for further clarifications related to certain topics, notably including:
The responses collected by the 19 January deadline will be subsequently consolidated into a follow up report to the European Commission later in 2022 and, in parallel, ESMA will add clarifications to the EMIR Q&A. In addition, responses to this consultation will feed into an upcoming ESMA review report, due in June 2023, covering the level of clearing, data quality, changes to the EMIR reporting framework and the accessibility of the reporting framework.
By François Masquelier, Chair, EACT