New rules for derivatives will apply as of 1 January 2013. These rules will apply to any party that is a counterparty in a so-called derivatives transaction. This concerns both financial and non-financial institutions. Many of these parties currently are not under the supervision of the Netherlands Authority for the Financial Markets (AFM) or De Nederlandsche Bank (DNB). These rules have been laid down in the European Regulation concerning over-the-counter (OTC) derivatives, central counterparties and transaction registers, also known under the name European Market Infrastructures Regulation (EMIR).
The obligations arising from EMIR have consequences for all users of derivatives. It is not yet certain from exactly what date the obligations have to be satisfied, because a number of obligations still need to be elaborated into further regulations. More clarity in this respect is expected at the start of 2013.
Users of standardised derivatives contracts that are not traded on trading platforms/facilities, are required under EMIR to have these cleared through a central counterparty (CCP). This is considered to be a safer way of clearing than clearing between the parties involved. A CCP is subject to a licence obligation. The collateral and the transferability of positions are also subject to strict requirements. These strict central clearing requirements are intended to control the mutual counterparty risk.
Non-financial institutions that use OTC derivatives to limit the risk that arises from their core activities (commercial hedging, for example, used to hedge exchange rate fluctuations or interest rate risks) are exempted from the central clearing requirement. Nor will all OTC derivatives be designated for mandatory central clearing in further regulations. It will often be the case that, under EMIR as well, more complex OTC derivatives cannot be cleared by a CCP. There will be additional requirements for so-called bilateral settlement in order to control the mutual counterparty risk.
In addition, all parties that conclude a derivatives contract have to report their transactions to a transaction register (Trade Repository). This applies to derivates that are traded on a regulated market and to those that are traded outside a regulated market. The Trade Repository, in which all derivatives transactions are registered, is required to hold a licence issued by the European regulator ESMA.
You can read more about the consequences of the new rules in the enclosed brochure.
- Brochure: The consequences of European derivatives legislation (only in Dutch available)
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