The European Securities and Markets Authority published on October 31, 2018 a statement regarding clearing and trading obligations stemming from the planned expiry on December 21 of an exemption from central clearing requirements for transactions involving certain types of derivative and counterparty under the European Market Infrastructure Regulation.

Henceforth the derogation from the clearing obligation for certain intra-group transactions concluded with a non-EU group entity, as well as the phase-in for counterparties in Category 4, in EMIR, broadly NFCs+, no longer applies for interest rate derivative classes denominated in the G4 currencies – US dollar, euro, yen and sterling – subject to the clearing obligation.

NFCs+ are non-financial counterparties with outstanding derivative transactions with a gross notional value exceeding €1 billion for credit and equity derivatives or €3 billion for interest rate, currency and commodity transactions.

EMIR provides an exemption regime for OTC derivative contracts concluded between counterparties within the EU and in a third country belonging to the same group subject to certain conditions, including an equivalence decision under Article 13(2) regarding the jurisdiction of the third-country counterparty.

In the absence of such equivalence decisions, ESMA carried out a review of the Commission delegated regulations on the clearing obligation and drew up draft amendments extending the exemption until December 21, 2020, which were submitted to the European Commission on September 27 last year. However, with the amendments not having been adopted by the exemption expiry date, the clearing obligation duly came into force on December 21, 2018.

Regarding the Category 4 phase-in, the Commission’s proposed amendments to EMIR (known as EMIR Refit) published on May 4, 2017 envisage that NFCs+ would be subject to the clearing obligation only for asset classes where their level of activity is above the clearing threshold.

Although this position has been supported by the European Parliament and the European Council, negotiations between the EU institutions on the EMIR Refit legislation is still ongoing, meaning that affected counterparties are now required to have arrangements in place to start clearing transactions, even though they may not have to do so in the future when the amendments come into force.

In addition, the expiry of the exemptions for both categories of counterparties mean that they also become subject to the obligation to trade on regulated markets, multilateral or organised trading facilities, or equivalent third-country trading venues.

ESMA notes that from a legal perspective, neither ESMA nor national regulatory authorities have the power to disapply directly applicable EU legislation nor to delay the onset of obligations; any change to the application of the rules must be carried out through EU legislation.

However, in view of the potential difficulties for counterparties affected by the failure to adopted amended rules before the expire date for the exemptions for intra-group transactions and NFCs+ that are not above the clearing threshold, ESMA says national regulators should not make their compliance or otherwise a priority and in general should exercise their risk-based supervisory powers in their day-to-day enforcement of the applicable legislation a proportionate manner.

The full text of ESMA’s statement is available in English at