The EMIR regulation (European Market Infrastructure Regulation) came into force on 16 August 2012. The regulation gradually imposes requirements on all types and sizes of entities that enter into derivative contracts with the aim of improving transparency and reducing the risks related to the derivatives market.
Overall, the regulation introduces four types of obligations on parties to derivatives trades:
- Trade reporting obligation: Parties to derivatives trades must report details about the trades to a trade repository. A trade repository is an entity that centrally collects details about derivatives trades in a register to which financial regulators have access for supervision purposes. The reporting obligation entered into force on 12 February 2014.
- Clearing obligation: Certain types of standardised OTC derivatives trades must be cleared via a central counterparty clearing house (CCP). A CCP is an organisation that carries out clearing and settlement of derivatives transactions. The clearing obligation is expected to enter into force in the second quarter of 2016.
- Risk mitigation obligations: Parties to OTC derivatives trades must adhere to certain risk management procedures, including the timely confirmation of the terms of their trades, portfolio compression, portfolio reconciliation and dispute resolution handling. These obligations are already in force.
- Collateralisation: Parties to OTC derivatives trades must have risk management procedures in place for the exchange of collateral. This obligation is expected to enter into force in 2016.
Read more about the scope of EMIR