Insights Blog

Trilogue negotiations on EMIR 3.0 concluded successfully this week.

As mentioned in our December 2023 insights, the requirement for firms subject to the clearing obligation to clear at least a portion of certain systemic derivatives through active accounts at EU CCPs generated the most debate during 2023.

While the provisionally agreed text is not yet available, the EU Council’s press release confirms that the active account requirement will be introduced as planned (notwithstanding the European Parliament’s proposal that it be phased-in following a cost/benefit analysis). Certain financial and non-financial counterparties will have to have an active account at an EU CCP through which they will need to clear trades in certain categories of “derivatives of substantial systemic importance” (at the outset, expected to be interest rate derivatives denominated in euro and Polish zloty, and short-term interest rate derivatives denominated in euro). A new “joint monitoring mechanism” will be set-up to keep track of compliance with the active account requirement.

When the provisionally agreed text is available, we will be able to confirm the final shape of both the active account requirement, and other key EMIR 3.0 proposals such as:

  • Exemption of intragroup transactions from clearing obligation and margin requirements: replacing Article 13 equivalence decisions with a list of third countries for which an exemption should not be granted (such as high risk third countries for AML / CFT purposes).
  • An exemption from the clearing obligation under where an EU FC or NFC+ enters into a transaction with a pension scheme arrangement that is established in a third country which is exempt from the clearing obligation under that country’s laws.
  • Additional transparency obligations on CCPs, including requirements to provide better visibility and predictability on margin calls, to give clear explanations of their initial margin models, and to continuously revise margin levels to take account of market conditions.
  • Only derivatives that are not cleared at an EU CCP or a recognised third country CCP will be including when calculating the position towards the thresholds under Articles 4a and 10 (and in the case of Article 10, derivatives that are objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of the NFC or of the group it belongs will not be included).
  • To enhance visibility, removing the exemption from reporting requirements for intragroup transactions where at least one of the counterparties is an NFC.
  • ESMA will be tasked with reviewing and clarifying the RTS relating to the hedging exemption.
  • NFCs that for the first time become subject to the obligation to exchange collateral for OTC derivative contracts not cleared by a CCP, and to mark-to-market on a daily basis, will have a 4-month implementation period.
  • A conditional exemption (proposed by the EU Council and the Parliament) from the clearing obligation for post-trade risk reduction services.
  • An exemption (proposed by the EU Council and the Parliament) from bilateral margining requirements for single-stock options and equity index options (with a provision for ESMA to monitor this every 2 years). The existing exemption expired in January 2024 and the ESAs had proposed a 2 year extension to bridge the gap between January 2024 and EMIR 3.0 coming into force.
  • Allowing bank and public guarantees to be considered eligible as highly liquid collateral (this is intended to benefit non-financial entities such as energy companies).