ESMA has recently clarified the date on which calculations required under EMIR are to be completed by financial counterparties that started taking positions in OTC derivatives only after the entry into force of EMIR Refit.
The European Market Infrastructure Regulation (EMIR) was amended recently, with the changes (known as EMIR Refit) entering into force on 17 June 2019. As discussed in our briefing on the implications of EMIR Refit, the changes included a widening of the definition of "financial counterparty" (FC) to include all alternative investment funds (AIFs) established in the EU and all central securities depositaries authorised under the Central Securities Depositaries Regulation.
EMIR Refit also introduced an exemption from the clearing obligation for a specific type of FC, commonly referred to as a "small financial counterparty" (referred to in this briefing as an SFC).
The clearing thresholds which must not be exceeded for the SFC exemption under EMIR Refit to apply are:
1 billion in gross notional value for credit derivatives contracts; 1 billion in gross notional value for equity derivatives contracts; 3 billion in gross notional value for interest rate derivative contracts; 3 billion in gross notional value for foreign exchange derivative contracts; 3 billion in gross notional value for commodity and other OTC derivative contracts. Annual Calculations
Since EMIR Refit became effective, FCs that have taken positions in OTC derivatives contracts may calculate (every 12 months) their average month-end average positions for the previous 12 months. That calculation must include all OTC derivative contracts (speculative or hedging):
entered into by that FC; or entered into by any member of the group to which the FC belongs. Based on this calculation, an FC can determine whether it exceeds any of the thresholds above. If none of the clearing thresholds are met, the FC will be an SFC and exempt from clearing. If the FC has exceeded any of the thresholds it will need to notify ESMA and its respective National Competent Authority (i.e. the Central Bank of...