Derivatives

Information for Non-financial counterparties under EMIR

Here, you will find more information about which rules non-financial counterparties are subject to, and what these should be aware of
 
The European Parliament and Council’s regulation (EU) No. 648/2012 on OTC derivatives, central counterparties and trade repositories (hereinafter referred to as EMIR) entered into force on 16 August 2012 and is as a legislation act directly applicable in Denmark without implementation in e.g. the Securities Trading Act. EMIR sets out rules for entering derivative contacts and includes both financial companies and other incorporated derivative contracts.

EMIR aims to, among other things, reduce the risks and increase the transparency of the market for derivative contracts, and therefore it requires that certain derivative contracts must be cleared by a central counterparty - a so-called CCP. In addition, it follows from EMIR that information on entered derivative contracts should be reported to trade repositories, and that the parties to derivative contracts must observe certain precautions in relation to supervising and managing risks associated with derivatives. The individual requirements of EMIR are still differentiated, in regard to who is party to the derivative contract.

Overall, EMIR distinguishes between financial counterparties and non-financial counterparties. The concept of financial counterparties covers companies that the FSA supervises e.g. in accordance with the Financial Business Act and the Securities Trading Act etc. Non-financial counterparties are every other kind of business.

Non-financial counterparties must:

  • Report information about entered derivative contracts to trade repositories.
  • Ensure that entered derivative contracts are subject to the clearing obligation and are cleared by an approved central counterparty, if the the nominal value of the non-financial counterparty’s derivative contracts exceeds certain threshold values.
  • Observe specifically stated measures to monitor and manage risks by entered derivative contracts, which are not cleared by a CCP.

 

Reporting to trade repositories

In accordance with EMIR Article 9, Non-financial counterparties must - regardless of the extent and value of the entered derivative contracts - report information to trade repositories. This is an individual duty which is independent of who the contract is entered with and whether the counterparty – e.g. because there is a financial counterparty - has an independent obligation to report information to a trade repository. Thus, the derivative contracts entered into by two companies within the same group will also be subject to the reporting obligation.

The information that the Non-financial counterparty must report appears in the Commission’s Delegated Regulation (EU) No 148/2013. In reporting, both counterparties to the derivative contract are identified by a unique, global identifier assigned by an authorized registration authority. Currently, Danish companies have created a global identifier at e.g. WM Datenservice (www.geiportal.org), CICI utility (www.ciciutility.org) and the London Stock Exchange (www.lseg.com / LEI). For a complete list of approved registration authorities see http://www.leiroc.org/publications/gls/lou_20131003_2.pdf.
 
The reporting obligation covers all derivative contracts entered before 16 August 2012 and which were still outstanding on 16 August 2012, plus contracts entered on 16 August 2012 or later. Contracts that are subject to the reporting obligation and are entered or will be entered before 12 February 2014 at the latest must be reported to a trade repository by 12 February 2017. Contracts entered on 12 February 2014 or later, as well as significant changes (e.g. utilisation of options, termination etc.) to contracts entered before 12 February 2014 must be reported within the next working day.
 

Clearing

With EMIR, certain derivative contracts will in time have to be cleared by a central counterparty. The clearing obligation will primarily be ascribed to the most standardized and liquid types of derivative contracts entered into between the counterparties either being financial counterparties or non-financial counterparties whose aggregated nominal value of outstanding derivative contracts exceeds one of the following thresholds:
 
1 billion euro for credit derivatives
1 billion euro for share derivatives
3 billion euro for interest derivatives
3 billion euro for currency derivatives
3 billion euro for commodities- and other derivative contracts
 

Precautions for monitoring and managing risks

For derivative contracts, which are not cleared by a CCP, both financial and non-financial counterparties must ensure that contracts are confirmed by both parties within certain time limits specified in the Commission’s Delegated Regulation (EU) No 149/2013. EMIR also requires that non-financial counterparties, whose nominal value of outstanding derivative contracts exceeds one of the thresholds set above, daily assess the value of outstanding contracts and have procedures in place to ensure appropriate exchange of collateral.
We gather statistics by using cookies. If you continue using the site, you automatically agree to this. Reject here