Draft rules that determine when OTC derivatives trades involving non-EU counterparties fall under EMIR have been submitted by ESMA, the European Securities and Markets Authority, for approval by the European Commission.
The final draft regulatory technical standards (RTS) specify that EMIR provisions regarding central clearing and risk mitigation techniques will apply to OTC derivatives entered into by two non-EU counterparties “which have a direct, substantial and foreseeable impact on EU financial markets,” ESMA said in a statement issued today.
“Ensuring that risks posed to the EU’s financial markets by non-EU transactions are addressed by regulation and supervision is key in ensuring safer markets.”
The draft rules would mean that EMIR applies where counterparties are established in one or more non-EU countries for which no decision has been adopted as to “equivalence of the jurisdiction’s regulatory regime”, and:
• One of the two non-EU counterparties to the OTC derivative contract is guaranteed by an EU financial for a total gross notional amount of at least €8bn, and for an amount of at least 5% of the OTC derivatives exposures of the EU financial guarantor; or
• The two non-EU counterparties execute their transactions via their EU branches and would qualify as financial counterparty if established in the EU.
The rules also attempt to prevent efforts to evade EMIR regulation by using derivatives contracts or other arrangements “without any business substance or economic justification, and in a way to circumvent the clearing obligation and risk mitigation provisions”.
The European Commission has three months to endorse the draft rules, which would then be submitted to the European Parliament and the European Council.
ESMA’s press release is available by clicking here.