Tuesday 5 July 2011

Derivatives, central counterparties and trade repositories ***I

P7_TA(2011)0310

Amendments of the European Parliament, adopted on 5 July 2011, to the proposal for a regulation of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (COM(2010)0484 – C7-0265/2010 – 2010/0250(COD)) (1)

2013/C 33 E/34

(Ordinary legislative procedure: first reading)

[Amendment No 1 unless indicated otherwise]

AMENDMENTS BY PARLIAMENT (2)

to the Commission proposal

(1) The matter was then referred back to committee pursuant to Rule 57(2), second subparagraph (A7-0223/2011).

(2) Amendments: new or amended text is highlighted in bold italics; deletions are indicated by the symbol ▐.

Tuesday 5 July 2011

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on OTC derivatives, central counterparties and trade repositories

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Economic and Social Committee (1),

Having regard to the opinion of the European Central Bank (2),

Acting in accordance with the ordinary legislative procedure,

Whereas:

(1) At the request of the Commission, a report published on 25 February 2009 by a high-level group of experts chaired by J. de Larosière concluded that the supervisory framework needed to be strengthened to reduce the risk and severity of future financial crisis and recommended far-reaching reforms to the structure of supervision of the financial sector in the Union, including the creation of a European System of Financial Supervisors, comprising three European Supervisory Authorities, one each for the banking, insurance and occupational pensions and the securities and markets sectors, and the creation of a European Systemic Risk Board.

(2) The Commission Communication of 4 March 2009 entitled "Driving European Recovery" proposed to strengthen the Union's regulatory framework for financial services. In its Communication of 3 July 2009 entitled “Ensuring efficient, safe and sound derivatives markets”, the Commission assessed the role of derivatives in the financial crisis, and, in its Communication of 20 October 2009 entitled “Ensuring efficient, safe and sound derivative markets: Future policy actions”, the Commission outlined the actions it intends to take to reduce the risks associated with derivatives.

(3) On 23 September 2009, the Commission adopted proposals for three Regulations establishing the European System of Financial Supervision, including the creation of three European Supervisory Authorities (ESAs) to contribute to a consistent application of Union legislation and to the establishment of high quality common regulatory and supervisory standards and practices, namely the European Supervisory Authority (European Banking Authority) established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council (3) (EBA), the European Supervisory Authority (European Insurance and Occupational Pensions Authority) established by Regulation (EU) No 1094/2010 of the European Parliament and of the Council (4), (EIOPA) and the European Supervisory Authority (European Securities and Markets Authority) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (5) (ESMA) Those authorities have a crucial role to play in safeguarding the stability of the financial sector. It is therefore essential to continuously ensure that the development of their work is a matter of high political priority and that they are adequately resourced.

(4) Over-the-counter (OTC) derivatives lack transparency as they are privately negotiated contracts and any information concerning them is usually only available to the contracting parties. They create a complex web of interdependence which can make it difficult to identify the nature and level of risks involved. The financial crisis has demonstrated that such characteristics increase uncertainty in times of market stress and accordingly, pose risks to financial stability. This Regulation lays down conditions for mitigating those risks and improving the transparency of derivative contracts.

(5) At the 26 September 2009 summit in Pittsburgh, the G20 Leaders agreed that all standardised OTC derivative contracts should be cleared through central counterparties (CCP) by the end of 2012 and that OTC derivative contracts should be reported to trade repositories. In June 2010, the G20 Leaders in Toronto reaffirmed their commitment and also committed to accelerate the implementation of strong measures to improve transparency and regulatory oversight of OTC derivatives in an internationally consistent and non-discriminatory way with a view to improving the OTC derivatives market and creating more powerful tools to hold firms to account for the risks they take . The Commission will endeavour to ensure that those commitments are implemented in a similar way by our international partners.

(6) The European Council, in its Conclusions of 2 December 2009, agreed that there was a need to substantially improve the mitigation of counterparty credit risk and that it was important to improve transparency, efficiency and integrity for derivative transactions. The European Parliament resolution of 15 June 2010 on "Derivatives markets: future policy actions" called for mandatory clearing and reporting of OTC derivatives.

(7) ESMA should act within the scope of this Regulation by safeguarding the stability of financial markets in emergency situations and ensuring the consistent application of Union rules by national supervisory authorities and settling disagreements between them. It is also entrusted with developing legally binding regulatory technical standards and has a central role in the authorisation and monitoring of CCPs and trade repositories.

(8) Uniform rules are required for derivative contracts set out in Annex I, Section C, points (4) to (10) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (6).

(8a) The Commission, in its Communication of 2 February 2011 entitled “Tackling the challenges in commodity markets and on raw materials", identified the increased financialisation of international raw material markets as a strategical challenge to Union’s economies. The Commission reaffirmed the need for more transparency in the trading of raw materials as well as the positive potential effect of position limits in derivative trading in commodities. With a view to achieving an effective decrease of the unhealthily high trading volume in raw material markets, the Commission should, in particular, assess the effects of restricting admission to trade on raw materials stock exchanges to physical traders only, excluding financial institutions. In the incoming reviews of Directive 2004/39/EC and Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) (7), the Commission should, in particular, address the problem of price volatility on food and agricultural markets and provide for appropriate requirements to prevent systemic risks and manipulative practices, including margin requirements, position limits and punitive disgorgement of profits.

(9) Incentives to promote the use of CCPs have not proven to be sufficient to ensure that standardised OTC derivatives are in fact cleared. Mandatory CCP clearing requirements for those OTC derivatives that can be cleared are therefore necessary.

(10) It is likely that Member States will adopt divergent national measures which could create obstacles to the smooth functioning of the internal market and be to the detriment of market participants and financial stability. A uniform application of the clearing obligation in the Union is also necessary to ensure a high level of investor protection and to create a level playing field between market participants.

(11) Ensuring that the clearing obligation reduces systemic risk requires a process of identification of eligible classes of derivatives that should be subject to that obligation. That process should take into account that not all CCP-cleared OTC derivatives can be considered suitable for mandatory CCP clearing.

(12) This Regulation sets out the criteria for determining the eligibility to the clearing obligation. In view of its pivotal role, ESMA should decide , after consulting the Commission and the European Systemic Risk Board established by Regulation (EU) No 1092/2010 of the European Parliament and the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (8) (ESRB), whether a class of derivatives meets the eligibility criteria , whether the clearing obligation should be applied and from when the clearing obligation should take effect, including, where appropriate, any ‧phase-in‧ implementation standards . A gradual implementation of the clearing obligation could be either in terms of proportion of the eligible classes that are to be cleared, or in terms of the types of market participants that are to comply with the clearing obligation . Bilateral clearing should continue to be authorised if the requirements for clearing are not met for certain categories of derivatives within a class of derivatives, as is sometimes the case for covered bonds.

(12a) In determining whether a class of derivatives is to be subject to clearing requirements, ESMA should aim for a reduction in systemic risk and avoidance of systemic repercussions. This includes taking into account in the assessment factors such as the future date from which the clearing obligation takes effect, the interconnectedness of the relevant class of derivative in the market, the level of contractual and economic standardisation of contracts, the effect on the performance and competitiveness of EU companies in the global markets, the operational and risk management ability of CCPs to handle the volume and obligations of this directive, the degree of settlement risk and counterparty credit risk and the impact of cost on the real economy and investment in particular.

(12b) The characteristics of the foreign exchange market (daily volume of the transaction, currency pairs, importance of third country transactions, settlement risk addressed through a robust existing mechanism) call for an appropriate regime that would rely notably on preliminary international convergence and mutual recognition of the relevant infrastructure.

(12c) In drafting delegated acts and technical implementing standards, special consideration should be given to the needs of long-term savings institutions to provide long-term savings products to consumers. To that end this Regulation should not result in excessive costs for long-term savings institutions. One of the tools by which to achieve that objective is the proper application of the proportionality principle.

(12d) For long-term savings institutions, the posting of government and high-quality corporate bonds as an alternative to cash should be permitted to cover initial and variation margins.

(13) For an OTC derivative contract to be cleared, it is necessary for both parties to that contract to consent. Therefore, exemptions to the clearing obligation should be narrowly tailored as they would reduce the effectiveness of the obligation and the benefits of CCP clearing and may lead to regulatory arbitrage between groups of market participants. Nevertheless, the Commission and ESMA should ensure that mandatory clearing arrangements also protect investors.

(13a) In general, the obligations under this Regulation should apply only to future transactions, thereby making a smooth transition possible and enhancing the stability of the system while reducing the need for subsequent adjustments. In that connection, clearing and reporting obligations should be dealt with in different ways. Whilst a retrospective clearing obligation is hardly feasible on legal grounds, given the need for post-collateralisation, the same is not true of a retrospective reporting obligation. In this case, on the basis of the results of an impact study, and using rules tailored to classes of derivatives, technical requirements and remaining periods to maturity, a retrospective reporting obligation could be laid down.

(14) OTC derivatives that are not considered suitable for CCP clearing still entail counterparty credit risk and therefore, rules should be established to manage that risk. Those rules should be only applicable to the market participants that are subject to the clearing obligation.

(14a) It is important that necessarily different treatment of non-financial counterparties extends from this Regulation to Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (9) and Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions (10). Counterparties who are not mandated to clear centrally should not face higher capital charges on continued bilateral arrangements.

(14b) The regulatory capital charge for financial counterparties dealing in OTC derivatives which are cleared bilaterally and not in a central clearing house should be able to be calculated in relation to the levels of potential loss associated with the risk of default, measured for each counterparty.

(15) Rules on clearing and reporting obligations and rules on risk mitigation techniques for derivative contracts not cleared by a CCP should apply to financial counterparties, namely investment firms authorised under Directive 2004/39/EC, credit institutions authorised under Directive 2006/48/EC, insurance undertakings authorised under First Council Directive 73/239/EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance (11), assurance undertakings authorised under Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance (12), reinsurance undertakings authorised under Directive 2005/68/ECof the European Parliament and of the Council of 16 November 2005 on reinsurance (13), undertakings for collective investments in transferable securities (UCITS) authorised under Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (14), and alternative investment funds managed by alternative investment fund managers authorised or registered under Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers (15).

(15a) The activities of UCITS which carry out only low-volume derivatives transactions should therefore be assessed in order to determine on what precise basis they should be classified as financial counterparties within the meaning of this Regulation. In that connection, steps should be taken to prevent distortions of competition and reduce the scope for abuse. For that reason, the clearing threshold for non-financial counterparties should not automatically be applied to UCITS. Instead, a narrowly defined derogation should be considered and introduced.

(15b) UCITS should be within the scope of this Regulation, as the diversified investment policies of UCITS also include transactions in derivative contracts. UCITS have in recent years considerably grown and represent an estimated 50 % of Union GDP, having also a global systemic importance considering their significant investment capacity.

(15c) Pension funds as defined in Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision (16) with a risk-averse risk-profile and that use derivates to hedge their pension liability risks should be made subject to the reporting obligations and the risk-mitigation techniques for OTC derivative contracts not cleared by a CCP as laid down in this Regulation. Those pensions should not, however, be subject to the clearing obligation in order to avoid disproportionate costs for pensioners.

(16) Where appropriate, rules applicable to financial counterparties should also apply to non-financial counterparties. It is recognised that non-financial counterparties use OTC contracts in order to cover themselves against commercial risks directly linked to their commercial activities. Consequently, in determining whether a non-financial counterparty should be subject to the clearing obligation, consideration should be given to the purpose for which that non-financial counterparty uses OTC derivatives and to the size of the exposures that it has in those instruments. Non-financial counterparties should explain the use of derivatives through their annual report or other appropriate means. When establishing the threshold for the clearing obligation, ESMA should consult all relevant authorities, such as regulators responsible for commodity markets, and the non-financial counterparties, in order to ensure that the particularities of those sectors are fully taken into account. Moreover, by 31 December 2013, the Commission should assess the systemic importance of the transactions of non-financial firms in OTC derivatives in different sectors, including in the energy sector. Should a comparable set of EU rules tailored to individual sectors come into force, the Commission should immediately consider whether the sector should be removed from the scope of this Regulation and should put forward appropriate legislative proposals.

(16a) The clearing threshold for non-financial counterparties is a very important figure for all market participants. Both qualitative and quantitative criteria should be assessed and given a suitable weighting when the clearing threshold is set. In that connection, appropriate efforts should be made to standardise OTC contracts to a considerable extent and to recognise the importance of risk mitigation for non-financial counterparties in the context of their normal business activity. The introduction of thresholds based on the relevance of the undertaking for the market as a whole or for an OTC market segment could be supplemented by the use of operational risk ratios.

(16b) With a view to exempting small and medium-sized enterprises (SMEs) from the clearing obligation, consideration should also be given to sector-specific OTC clearing thresholds based on the total volume of contracts concluded by an undertaking. In addition, ESMA should examine whether a de minimis rule might be introduced for SMEs in connection with the reporting obligation.

(16c) The Commission should ensure that the necessary and appropriate use of OTC derivatives by non-financial counterparties to hedge market risks arising from business operations is not undermined in terms of pricing or availability by future legislative proposals.

(17) A contract entered into by a fund, whether managed by a fund manager or not, should be considered within the scope of this Regulation.

(18) Central banks and other national bodies performing similar functions, other public bodies charged with or intervening in the management of the public debt, and multilateral development banks listed in Section 4.2 of Part 1 of Annex VI to Directive 2006/48/EC , the Bank for International Settlements and certain of the public sector entities defined in Article 4(18) of Directive 2006/48/EC should be excluded from the scope of this Regulation in order to avoid limiting their powers to intervene to stabilise the market, if and when required. Consideration should be given in advance to the issue of whether it would be responsible to grant a derogation from clearing to public sector entities within the meaning of Article 4(18) of Directive 2006/48/EC which are owned by central governments and are covered by an explicit guarantee arrangement entered into by that central government which is equivalent to assumption of liability.

(19) As not all market participants that are subject to the clearing obligation are able to become clearing members of the CCP (or clients of clearing members) , they should have the possibility to access CCPs as clients or through investment firms or credit institutions that are themselves clients .

(20) The introduction of a clearing obligation along with a process to establish which CCPs can be used for the purpose of that obligation may lead to unintended competitive distortions of the OTC derivatives market. For example, a CCP could refuse to clear transactions executed on certain trading venues because the CCP is owned by a competing trading venue. In order to avoid such discriminatory practices, CCPs should clear transactions executed in different venues to the extent that those venues comply with the operational and technical requirements established by the CCP , without reference to the contract documents on the basis of which the parties concluded the relevant OTC derivatives transaction, provided that the documents are consistent with market standards . Generally, the Commission should continue to monitor closely the evolution of the OTC derivatives market and should, where necessary, intervene in order to prevent such competitive distortions from occurring in the internal market.

(21) In order to identify the relevant classes of OTC derivatives that should be subject to the clearing obligation, the thresholds and systemically relevant non-financial counterparties, reliable data is needed. Therefore, for regulatory purposes, it is important that a uniform OTC derivatives data reporting requirement is established at Union level. Moreover, a retrospective reporting obligation is needed, to the largest possible extent, for both financial counterparties and non-financial counterparties over the threshold, in order to provide ESMA with comparative data. If such retrospective reporting is not feasible for any classes of OTC derivatives, an appropriate justification should be provided to the respective trade repository.

(22) It is important that market participants report all details regarding OTC derivative contracts they have entered into to trade repositories. As a result, information on the risks inherent in OTC derivatives markets will be centrally stored and easily accessible to ESMA, the relevant competent authorities and the relevant central banks of the European System of Central Banks (ESCB). The Commission and ESMA should consider extending the applicability of the reporting obligation to embedded derivatives.

(22a) Institutions for occupational retirement provision as defined in Article 6(a) of Directive 2003/41/EC or arrangements offering similar level of risk mitigation and recognised under national law for the purpose of retirement provision using derivative contracts that are objectively measurable as reducing risks directly related to the solvency of the institution that operate a pension scheme should be subject to the provisions for bilateral collateralisation as set out in this Regulation to be reviewed in 2014.

(23) In order to allow for a comprehensive overview of the market and for assessing systemic risk, both cleared and non-cleared contracts should be reported to trade repositories.

(23a) ESMA, EIOPA and EBA should be provided with adequate resources in order to effectively perform the tasks they are given in this Regulation.

(24) The obligation to report any amendment to or termination of a contract should apply to the original counterparties to that contract and to any other entities reporting on behalf of the original counterparties. A counterparty or its employees, who reports the full details of a contract to a trade repository on behalf of another counterparty in accordance with this Regulation should not be in breach of any restriction on disclosure.

(25) There should be effective, proportionate and dissuasive penalties with regard to the clearing and reporting obligations. Member States should enforce those penalties in a manner that does not reduce the effectiveness of those rules. Member States should ensure that the penalties imposed are publicly disclosed and that assessment reports on the effectiveness of existing rules are published at regular intervals.

(26) Authorisation of a CCP should be conditional on a minimum amount of initial capital. Capital, together with retained earnings and reserves of a CCP, should be proportionate to the size and activity of the CCP at all times in order to ensure that it is adequately capitalised against operational or residual risks and that it is able to conduct an orderly winding down or restructuring of its operations if necessary.

(27) As this Regulation introduces a legal obligation to clear through specific CCPs for regulatory purposes, it is essential to ensure that those CCPs are safe and sound and comply at all times with the stringent organisational, business conduct, and prudential requirements established by this Regulation. In order to ensure uniform application of this Regulation, those requirements should apply to the clearing of all financial instruments in which the CCPs deal.

(27a) The relevant competent authority should satisfy itself that a CCP maintains sufficient available financial resources (which should include a minimum contribution of own funds of the CCP), in accordance with guidelines issued by ESMA.

(28) It is therefore necessary, for regulatory and harmonisation purposes, to ensure that financial counterparties only use CCPs which comply with the requirements laid down in this Regulation.

(29) Direct rules regarding the authorisation and supervision of CCPs are an essential corollary to the obligation to clear OTC derivatives. It is appropriate that competent authoritiesretain the responsibility for all aspects of the authorisation and the supervision of CCPs, including the responsibility to verify that the applicant CCP is compliant with this Regulation and with Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (17), in view of the fact that those national competent authorities remain best placed to examine how the CCPs operate on a daily basis, to carry out regular reviews and to take appropriate action, where necessary.

(30) Where a CCP risks insolvency, the fiscal responsibility may lie predominantly with the Member State in which it is established. It follows that authorisation and supervision of that CCP should be exercised by the relevant competent authority of that Member State. However, since a CCP’s clearing members may be established in different Member States and they will be the first to be impacted by the CCP’s default, it is imperative that ESMA should be involved in the authorisation and supervisory process. This will avoid divergent national measures or practices and obstacles to the internal market. ESMA should involve other competent authorities in the Member States concerned in the work of preparing recommendations and decisions.

(31) It is necessary to reinforce provisions on exchange of information between competent authorities and to strengthen the duties of assistance and cooperation between them. ▐ For the exchange of information, strict professional secrecy is needed. It is essential, due to the wide impact of OTC derivative contracts, that other regulatory authorities ▐ have access to information necessary to the exercise of their functions.

(31a) Nothing in this Regulation should attempt to restrict or impede a CCP in one jurisdiction from clearing a product denominated in the currency of another Member State or the currency of a third country, or to require a CCP to have a banking licence in order to have access to day-to-day central bank liquidity.

(32) In view of the global nature of financial markets, agreements with CCPs established in third countries on the provision of clearing services within the Union are necessary . Such agreements should cover the authorisation by ESMA and the competent authority of the Member State in which the CCP concerned intends to provide clearing services of authorisation of a CCP established in a third country or the granting by the Commission of an exemption from the authorisation conditions and procedure , provided that the Commission has recognised the legal and supervisory framework of that third country as equivalent to the Union framework and that the requisite conditions are met. In this context, agreements with the Union's major international partners will be of particular importance in order to ensure a global level playing field and ensure financial stability.

(32a) On 16 September 2010, the European Council agreed on the need for the Union to promote its interest and values more assertively and in a spirit of reciprocity and mutual benefit in the context of the Union's external relations and to take steps, inter alia, to secure greater market access for European business and deepen regulatory cooperation with major trading partners.

(33) CCPs should have robust governance arrangements, senior management of good repute and independent members on its board, irrespective of its ownership structure. At least one-third, and no less than two, members of the board should be independent members. Those independent members should not act as independent members in more than one other CCP. Their remuneration should not be linked in any way with the performance of the CCP. However, different governance arrangements and ownership structures of a CCP may influence a CCP's willingness or ability to clear certain products. It is thus appropriate that the independent members of the board and the risk committee to be established by the CCP should address any potential conflict of interests within a CCP. Clearing members and clients need to be adequately represented as decisions taken by the CCP may have an impact on them.

(34) A CCP may outsource functions other than its risk management functions, but only where those outsourced functions do not impact on the proper operation of the CCP and on its ability to manage risks. Outsourcing of functions should be approved by the risk committee of the CCP.

(35) The participation requirements for a CCP should therefore be transparent, proportionate, and non-discriminatory and should allow for remote access to the extent that this does not expose the CCP to additional risks.

(36) Clients of clearing members that clear their OTC derivatives with CCPs should be granted a high level of protection. The actual level of protection depends on the level of segregation that those clients choose. Intermediaries should segregate their assets from those of their clients. For this reason, CCPs should keep updated and easily identifiable records. In addition, the accounts of members in default should be transferable to other members.

(36a) Any form of legal uncertainty regarding the effectiveness and enforceability of a CCP’s rules and procedures governing the demarcation of the assets and obligations of the clearing members and their clients and the transfer of positions in response to pre-determined events would undermine the stability of a CCP. The events whose nature is such as to trigger a transfer of positions should be specified in advance in order to safeguard the scope of the protection provided.

(37) A CCP should have a sound risk management framework to manage credit risks, liquidity risks, operational and other risks, including the risks that it bears or poses to other entities as a result of interdependencies. A CCP should have adequate procedures and mechanisms in place to deal with the default of a clearing member. In order to minimise the contagion risk of such a default, the CCP should have in place stringent participation requirements, collect appropriate initial margins and maintain a default fund and other financial resources to cover potential losses. The development of a highly robust risk management should remain the primary objective of a CCP. However, it may adapt its features to the specific activities and risk profiles of the clients of the clearing members, and if deemed appropriate, may include in the scope of the highly liquid assets accepted as collateral at least cash and government bonds subject to adequate haircuts.

(37a) CCPs’ risk management strategies should be sound, and should not transfer risk to the taxpayer.

(37b) The Financial Stability Board has identified CCPs as systemically important institutions. There is no common practice internationally or within the Union regarding conditions under which CCPs may access central bank liquidity facilities or may need to be licensed as credit institutions. The implementation of the clearing obligation required by this Regulation may increase the systemic importance of CCPs and the need for liquidity. The Commission should therefore be invited to take into account the results of any ongoing work between central banks, to assess, in cooperation with the ESCB, the possible need for measures to facilitate CCPs' access to central bank liquidity facilities in one or more currencies and to report to the European Parliament and the Council.

(38) Margin calls and haircuts on collateral may have procyclical effects. CCPs, competent authorities and ESMA should therefore adopt measures to prevent and control possible procyclical effects in risk management practices adopted by CCPs, to the extent that a CCP's soundness and financial security is not negatively affected.

(39) Exposure management is an essential part of the clearing process. Access to, and use of, the relevant pricing sources should be granted to provide clearing services in general. Such pricing sources should include those related to indices that are used as references to derivatives or other financial instruments.

(40) Margins are the primary line of defence for a CCP. Although CCPs should invest the margins received in a safe and prudent manner, they should make particular efforts to ensure adequate protection of margins to guarantee that they are returned in a timely manner to the non-defaulting clearing members or to an interoperable CCP where the CCP collecting these margins defaults.

(40a) Access to adequate liquidity resources is essential for a CCP. It is possible for such liquidity to derive from access to central bank liquidity, creditworthy and reliable commercial bank liquidity, or a combination of both.

(41) The "European Code of Conduct for Clearing and Settlement" of 7 November 2006 (18) established a voluntary framework for setting up links between CCPs and trade repositories. However, the post-trade sector remains fragmented along national lines, making cross-border trades more costly and hindering harmonisation. It is therefore necessary to lay down the conditions for the establishment of interoperable arrangements between CCPs to the extent these do not expose the relevant CCPs to risks that are not appropriately managed.

(42) Interoperability arrangements can, in general, be tools for greater integration of the post-trading market within the Union and regulation should be provided for. However, interoperability arrangements may expose CCPs to additional risks. Given the additional complexities involved in an interoperability arrangement between CCPs clearing OTC derivative contracts, it is appropriate at this stage to require a grace period of three years between receiving clearing authorisation for derivatives and eligibility to apply for authorisation for interoperability as well as to restrict the scope of subsequent interoperability arrangements to cash securities. However, by 30 September 2014, ESMA should submit a report to the Commission on whether and when an extension of that scope to other financial instruments would be appropriate.

(43) Trade repositories collect data for regulatory purposes that are relevant to authorities in all Member States. ESMA should assume responsibility for the registration, withdrawal and surveillance of trade repositories.

(44) Given that regulators, CCPs and other market participants rely on the data maintained by trade repositories, it is necessary to ensure that those trade repositories are subject to strict record-keeping and data management requirements.

(45) Transparency of prices and fees associated with the services provided by CCPs , their members and trade repositories is necessary to enable market participants to make an informed choice.

(45a) There are areas within financial services and trading of derivative contracts where commercial and intellectual property rights may also exist. In instances where these relate to products or services which have become or impact upon industry standards there should be a requirement for licences to be available on proportionate FRAND (Fair, Reasonable and Non-Discriminatory) terms.

(46) ESMA should be able to propose to the Commission to impose periodic penalty payments. The purpose of those periodic penalty payments should be to achieve that an infringement established by ESMA is put to an end, that complete and correct information which ESMA has requested is supplied or that trade repositories , CCPs, their members or other persons submit to an investigation. Moreover, for deterrence purposes and to compel trade repositories , CCPs and their members to comply with this Regulation, the Commission should also be able to impose fines, following a request of ESMA, where intentionally or negligently, specific provisions of this Regulation have been breached. The fine should be dissuasive and proportionate to the nature and seriousness of the breach, the duration of the breach and the economic capacity of the trade repository , CCP or member concerned.

(47) In order to effectively survey trade repositories, CCPs and their members, ESMA should have the right to conduct investigations and on-site-inspections.

(48) It is essential that Member States and ESMA protect the right to privacy of natural persons when processing personal data, in accordance with Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and of the freedom of movement of such data (19).

(49) It is important to ensure international convergence of requirements for CCPs and trade repositories. This Regulation follows the recommendations developed by CPSS-IOSCO and ESCB-CESR and creates a Union framework in which CCPs can operate safely. ESMA should consider these developments when drawing up the regulatory technical standards as well as the guidelines and recommendations foreseen in this Regulation.

(50) The power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union and the power to endorse regulatory technical standards in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010 should be delegated to the Commission in respect of the details to be included in the notification to ESMA and in the register and the criteria for the decision of ESMA on the eligibility for the clearing obligation, on the information and clearing threshold, on the maximum time lag regarding the contract, on liquidity, on the minimum content of governance rules, on details of record keeping, on minimum content of business continuity plan and the services guaranteed, on percentages and time horizon for margin requirements, on extreme market conditions, on highly liquid collateral and haircuts, on highly liquid financial instruments and concentration limits, on details for performance of tests, on details concerning the application of a trade repository for registration with ESMA, on fines and on details concerning the information that a trade repository should make available, as referred to in this Regulation. In defining the delegated acts, the Commission should make use of the expertise of the relevant ESAs (ESMA, EBA and EIOPA). In view of the expertise of ESMA regarding issues concerning securities and securities markets, ESMA should play a central role in advising the Commission on the preparation of the delegated acts. However, where appropriate, ESMA should consult EBA and EIOPA. [Am. 16]

(50a) As part of the preparation for the establishment of technical guidelines and regulatory technical standards, and in particular when setting the clearing threshold for non-financial counterparties under this Regulation, ESMA should organise public hearings of market participants.

(51) In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by the Member States of the Commission's exercise of implementing powers (20). [Am. 17]

(52) Since the objectives of this Regulation, namely to lay down uniform requirements for OTC derivative contracts and to also lay down uniform requirements for the performance of activities of CCPs and trade repositories, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale of the action, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

(53) In view of the rules regarding interoperable systems, it was deemed appropriate to amend Directive 98/26/EC to protect the rights of a system operator that provides collateral security to a receiving system operator in the event of insolvency proceedings against that receiving system operator.

(53a) To ensure coherent and effective legislation and due to the close links between trading and post-trading, this Regulation should be aligned with Directive 2004/39/EC, which will determine the appropriate trading venue requirements to be imposed on the venues on which derivatives as defined in EMIR are executed. Those requirements may include transparency, access, order execution, surveillance, robustness and system safety as well as other necessary requirements.

(53b) The sale of complex derivative products to local public authorities calls for special attention. The Commission should include specific proposals in the incoming review of Directive 2004/39/EC to address this concern. These proposals will include specific due diligence, information and disclosure requirements,

HAVE ADOPTED THIS REGULATION:

Title I

Subject matter, scope and definitions

Article 1

Subject matter and scope

1. This Regulation lays down uniform requirements for derivative contracts , specific provisions to improve the transparency and risk management of the OTC derivatives market as well as uniform requirements for the performance of activities of CCPs and trade repositories.

In order to ensure consistent application of this Regulation, ESMA shall develop draft regulatory technical standards to lay down guidelines for the interpretation and application, for the purposes of this Regulation, of points (4) to (10) of Section C of Annex I to Directive 2004/39/EC.

ESMA shall submit those draft regulatory technical standards to the Commission by 30 June 2012.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the second subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. [Am.18]

2. This Regulation shall apply to CCPs and their clearing members , financial counterparties and to trade repositories. It shall apply to non-financial counterparties where so provided.

3. Title V shall apply only to transferable securities and money-market instruments, as defined in point (18)(a) and (b) and point (19) of Article 4(1) of Directive 2004/39/EC.

4. The clearing obligations of this Regulation shall not apply to:

(a) the members of the ESCB and other national bodies performing similar functions and other public bodies charged with or intervening in the management of the public debt;

(b) multilateral development banks, as listed under Section 4.2 of Part 1 of Annex VI to Directive 2006/48/EC.

(ba) the Bank for International Settlements.

4a. Further derogations from this Regulation shall require the adoption of a specific regulation of the European Parliament and of the Council drawn up on the basis of international standards and equivalent Union sectoral rules.

Article 2

Definitions

1. For the purposes of this Regulation, the following definitions shall apply:

(1) 'central counterparty’ or ‘CCP’ means an entity that legally interposes itself between the counterparties to the contracts traded within one or more financial markets, becoming the buyer to every seller and the seller to every buyer and which is responsible for the operation of a clearing system;

(2) ‧trade repository‧ means an entity that centrally collects and maintains the records of derivatives;

(3) ‧clearing‧ means the process by which a third party interposes itself , directly or indirectly, between the transaction counterparties in order to assume their rights and obligations ;

(4) ‧class of derivatives‧ means a subset of derivatives sharing common and essential characteristics which include at least the relationship with the underlying asset, the type of underlying asset, the pay-off profile and currency of notional. Derivatives belonging to the same class may have different maturities ;

(5) ‧OTC derivatives‧ means derivative contracts whose execution does not take place on a regulated market or on a third-country market considered as equivalent to a regulated market or on any other organised trading venue established under Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading in a regulated market (21) that clears such contracts through a CCP ;

(5a) "regulated market" means a multilateral system as defined in Article 4(1)(14) of Directive 2004/39/EC;

(5b) "multilateral trading facility” or “MTF" means a multilateral system as defined in Article 4(1)(15) of Directive 2004/39/EC;

(6) ‧financial counterparty‧ means an undertaking established in the Union which is an authorised investment firm as set out in Directive 2004/39/EC, an authorised credit institution as defined in Directive 2006/48/EC, an authorised insurance undertaking as defined in Directive 73/239/EEC, an authorised assurance undertaking as defined in Directive 2002/83/EC, an authorised reinsurance undertaking as defined in Directive 2005/68/EC, an authorised UCITS as defined in Directive 2009/65/EC, an authorised institution for occupational retirement provision as defined in Directive 2003/41/EC or an authorised alternative investment fund as defined in Directive 2011/61/EU;

(7) ‧non-financial counterparty‧ means an undertaking established in the Union other than the entities referred to in points (1) and (6) ;

(7a) ‧occupational pension scheme‧ means a pension scheme established pursuant to Directive 2003/41/EC, including the authorised entities responsible for managing IORP and acting on their behalf referred to in Article 2(1) of that Directive or the appointed investment managers pursuant to Article 19(1) of that Directive or any other arrangement recognised under national law as a scheme established for the purposes of retirement provision;

(8) ‧counterparty credit risk‧ means the risk that the counterparty to a transaction defaults before the final settlement of the transaction's cash flows;

(9) ‧interoperability arrangement‧ means an arrangement between two or more CCPs that involves a cross-system execution of transactions;

(10) ‧competent authority‧ means the authority designated by each Member State in accordance with Article 18 or one or more of the ESAs ; [Am.5]

(11) ‧clearing member‧ means an undertaking which participates in a CCP and which is responsible for discharging the financial obligations arising from that participation;

(12) ‧client‧ means an undertaking with a direct or indirect contractual relationship with a clearing member of a CCP or one of its affiliates which enables that undertaking to clear transactions through that clearing member's use of that CCP;

(13) ‘qualifying holding’ means any direct or indirect holding in a CCP or trade repository which represents at least 10 % of the capital or of the voting rights, as set out in Articles 9 and 10 of Directive 2004/109/EC, taking into account the conditions regarding aggregation thereof laid down in Article 12(4) and (5) of that Directive, or which makes it possible to exercise a significant influence over the management of the CCP or trade repository in which that holding subsists;

(14) ‘parent undertaking’ means a parent undertaking within the meaning of Articles 1 and 2 of the Seventh Council Directive 83/349/EEC based on the Article 54(3)(g) of the treaty on consolidated accounts (22);

(15) ‘subsidiary’ means a subsidiary undertaking within the meaning of Articles 1 and 2 of Directive 83/349/EEC, including any subsidiary of a subsidiary undertaking of an ultimate parent undertaking;

(16) ‘control’ means control as defined in Article 1 of Directive 83/349/EEC;

(17) ‘close links’ means a situation in which two or more natural or legal persons are linked by: (a) participation which means the ownership, direct or by way of control, of 20 % or more of the voting rights or capital of an undertaking, (b) control which means the relationship between a parent undertaking and a subsidiary, in all the cases referred to in Article 1(1) and (2) of Directive 83/349/EEC, or a similar relationship between any natural or legal person and an undertaking or any subsidiary undertaking of a subsidiary undertaking also being considered a subsidiary of the parent undertaking which is at the head of those undertakings. A situation in which two or more natural or legal persons are permanently linked to one and the same person by a control relationship shall also be regarded as constituting a close link between such persons.

(18) ‧capital‧ means capital within the meaning of Article 22 of Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions in so far it has been paid up, plus the related share premium accounts, it fully absorbs losses in going concern situations, and in the event of bankruptcy or liquidation ranks after all other claims;

(19) ‧reserves‧ means reserves as set out in Article 9 of Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies (23) and profits and losses brought forward as a result of the application of the final profit or loss;

(20) ‧the board‧ means the administrative or supervisory board, or both, in accordance with national company law;

(21) ’independent member of the board' means a member of the board that has no previous or present business, family or other relationship that raises a conflict of interest with the CCP, its controlling shareholder(s) or management or its clearing members or management;

(22) ‧senior management‧ means the person or persons who effectively direct the business of the CCP and the executive member or members the board;

(22a) ‘third-country clearing counterparties’ means undertakings established in third countries that are considered as equivalent to financial counterparties or to the non-financial counterparties referred to in Article 7(2); such equivalence shall be deemed to apply where an undertaking established in a third country would, were it established within the Union, be classified as a financial counterparty or a non-financial counterparty referred to in Article 7(2);

(22b) ‧segregation‧ shall mean at least that the assets and positions of one person shall not be used to discharge the liabilities of or claims against any other person from whom it is intended that he is segregated, and shall not be available for such purposes, especially in the event of a clearing member’s insolvency;

(22c) ‘trade compression’ means the process of legally substituting a given set of derivative contracts with a different set of contracts characterised, from the perspective of each participant to the process, by: (a) a lower number of contracts and aggregated notional value; and (b) the same or a similar risk profile as the original set of derivative contracts;

(22d) ‧acting in concert‧ means acting in concert as defined in Article 10(a) of Directive 2004/109/EC.

2. In order to ensure consistent application of point (22a) of paragraph 1, ESMA shall develop draft regulatory technical standards specifying in greater detail the criteria to be used in the classification of undertakings from third countries as third-country clearing counterparties.

ESMA shall submit those draft regulatory technical standards to the Commission by 30 June 2012.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. [AMm.19]

Title II

Clearing, reporting and risk mitigation of OTC Derivatives

Article 3

Clearing obligations

1. A financial counterparty or a non-financial counterparty referred to in Article 7(2) shall clear all OTC derivative contracts which are considered eligible pursuant to Article 4 and are concluded with other financial counterparties or non-financial counterparties referred to in Article 7(2) in the relevant CCPs listed in the register as referred to in Article 4(4).

That clearing obligation shall also apply to financial counterparties and to the non-financial counterparties referred to in the first subparagraph which enter into eligible OTC derivative contracts with third-country clearing counterparties .

OTC derivatives contracts entered into before the date from which the clearing obligation takes effect for that class of derivatives are exempted from the clearing obligation.

That clearing obligation shall apply to all OTC derivative contracts which, following publication of ESMA decision pursuant to Article 4(2)(a), are classified as derivatives eligible for the clearing obligation.

(1a) There shall be no clearing obligation in the case of derivative contracts between subsidiary undertakings of the same parent company or between a parent company and a subsidiary undertaking. ‘Parent companies’ and ‘subsidiary companies’ for the purposes of this provision shall be companies thus defined under the relevant EU rules. This derogation shall not affect the reporting obligation under Article 6 or the obligations in relation to risk mitigation techniques under Article 8.

The exemptions shall only apply where the parent company concerned has first notified the competent authority of its home Member State in writing that they intend to make use of the exemption. The notification shall be made not less than thirty calendar days before the use the exemption. The competent authority shall ensure that the exemption is only used for derivative contracts that fulfil all of the following conditions:

(a) derivative contracts between subsidiary undertakings of the same parent company or between a parent company and a subsidiary undertaking are justified for economic reasons

(b) the use of the exemption does not increase systemic risk in the financial system

(c) there are no legal restrictions to capital flows between the subsidiary undertakings of the same parent company or between the parent company and the subsidiary undertaking.

2. For the purpose of complying with the clearing obligation under paragraph 1, financial counterparties and the non-financial counterparties referred to in Article 7(2) shall become either a clearing member or shall clear their transactions in the CCP through an investment firm or credit institution subject to the requirements of Directive 2004/39/EC.

Article 4

Eligibility for the clearing obligation

1. Where a competent authority has authorised a CCP to clear a class of derivatives under Article 10 or 11, it shall immediately notify ESMA of that authorisation and request a decision on the eligibility for the clearing obligation referred to in Article 3.

1a. Where a CCP established in a third country has been recognised in accordance with Article 23, the relevant competent authority of the third country shall make available to ESMA, in application of the cooperative arrangements as referred to in Article 23(4), the classes of derivative contracts for which that CCP has been granted the right to provide clearing services to clearing members and/or clients established in the Union.

2. ESMA, after receiving the notification and request referred to in paragraph 1, shall, within six months, address a decision to the requesting competent authority stating the following:

(a) whether that class of derivatives is eligible for the clearing obligation pursuant to Article 3;

(b) the future date from which the clearing obligation takes effect , including the timeframe in which counterparties or categories of counterparties become subject to the clearing obligation . This date shall be no earlier than the date on which the clearing obligation is imposed;

(ba) whether and subject to what conditions the clearing obligation applies in the case of transactions with persons in third countries.

Before taking a decision, ESMA shall conduct a public consultation with the market participants and non-market participants with expertise or interest in the subject and shall contact the ESRB and the competent authorities of third countries. A summary of this consultation shall be published within a month and additional information about the public consultations as well as other consultations shall be available on request.

2a. ESMA shall, on its own initiative, in accordance with the criteria set out in paragraph 3 and after conducting a public consultation and consulting the ESRB, and, where appropriate, the supervisory authorities of third countries, identify and notify to the Commission the classes of derivative contracts that should be considered eligible for the clearing obligation, but for which no CCP has yet received authorisation.

After identifying such a class of derivative contracts, ESMA shall publish a call for development of proposals for the clearing of that class of derivative contracts.

3. ESMA shall base its decision on the following criteria:

(a) reduction of systemic risk in the financial system, including potential failures of highly interconnected counterparties to meet their payment obligations and a lack of transparency concerning positions;

(b) the liquidity of contracts;

(c) the availability of fair, reliable and generally accepted pricing sources.

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In applying the above criteria ESMA shall also take account of international consensus.

Before taking a decision, ESMA shall conduct a public consultation and, where appropriate, consult with the competent authorities of third countries.

4. ESMA shall promptly publish any decision under paragraph 2 in a register. That register shall contain the eligible classes of derivatives and the CCPs authorised to clear them. ESMA shall regularly update that register.

ESMA shall regularly review its decisions and shall amend them where necessary.

5. ESMA shall, on its own initiative and after consulting the ESRB, identify and notify to the Commission the class of derivatives contracts that should be included in its public register, and eligible for the obligation to clear, but for which no CCP has yet received authorisation . Having identified such a category of class of derivatives, ESMA shall publish a call for the development of proposals by CCPs to clear them and publish a list for which such a call has been made.

5a. A class of derivatives shall cease to be considered eligible for the clearing obligation if there is no longer a CCP which is authorised or recognised by ESMA as authorised to clear them under this Regulation, or if no CCP is willing to clear that class of derivatives.

6. In order to ensure consistent application of this Article, ESMA shall develop draft regulatory technical standards specifying the following:

(a) the details to be included in the notification referred to in paragraph 1;

(b) the criteria referred to in paragraph 3;

(c) the details to be included in the register referred to in paragraph 4.

The details in paragraph 4 shall at least correctly and unequivocally identify the class of derivatives subject to the clearing obligation.

ESMA shall submit those draft regulatory technical standards to the Commission by 30 June 2012.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

Before taking a decision under paragraph 1, ESMA shall conduct a public consultation with the market participants. [Am. 20]

Article 4a

In order to promote effective and consistent global regulation of derivative contracts, the Commission may submit proposals to the Council for an appropriate mandate for negotiation with a view to obtaining an agreement on the effective equivalent legislation applicable to transactions executed in a third country by financial counterparties and non-financial counterparties referred to in Article 7.

Article 4b

Public register

1. For the purpose of the clearing obligation, ESMA shall establish and manage a public register. The register shall be publicly available on ESMA’s website.

2. The register shall reflect at least:

(a) the classes of derivative contracts that are subject to the clearing obligation pursuant to Article 3;

(b) the CCPs that can be used for the purpose of the clearing obligation;

(c) the dates from which the clearing obligation takes effect, including any phased-in implementation;

(d) the classes of derivatives identified by ESMA in accordance with Article 4(5).

3. Where a competent authority, or the relevant competent authority of a third country, has withdrawn the authorisation to clear a given class of derivative contracts, ESMA shall immediately remove such CCP from the register in relation to that class of derivatives.

4. The register shall be regularly updated by ESMA.

5. In order to ensure uniform conditions of application of this Article, ESMA may develop draft implementing technical standards to specify the details to be included in the public register referred to in paragraph 1.

ESMA shall submit any such draft implementing technical standards to the Commission by 30 June 2012.

Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1095/2010 .[Am. 19]

Article 5

Access to a CCP

1. A CCP that has been authorised to clear eligible OTC derivative contracts shall accept clearing such contracts on a transparent, fair and non-discriminatory basis regardless of the venue of execution and based where possible on international open industry standards, insofar as this does not adversely affect risk mitigation . In order to avoid discriminatory practices, CCPs shall accept to clear transactions executed in different venues, to the extent that those venues comply with the operational, technical and legal requirements established by, or applicable to, the CCP as well as its access and risk management requirements, without reference to the contract documents on the basis of which the parties concluded the relevant OTC derivatives transaction.

1a. The CCP shall provide a clear negative or positive response to the trading venue requesting authorisation to clear an OTC derivative contract within three months of processing their request.

In the event of a CCP refusal to clear an OTC derivative contract from a trading venue, the venue receives a fully reasoned and explained response.

Following a rejected application, the trading venue may put in a new request for access following a minimum of three months waiting period.

In case of disagreement, ESMA shall settle any disputes between competent authorities in accordance with Article 19 of Regulation (EU) No 1095/2010.

1b. For the purpose of the reports to the Commission and the European Parliament referred to in Article 68, ESMA shall monitor access to CCPs and the effects on competitiveness of certain practices, including the use of exclusive licensing practices.

Article 6

Reporting obligation

1. All derivative contracts shall be reported to a trade repository registered in accordance with Article 51 . Counterparties shall report the details of any ▐ derivative contract they have entered into and any material modification , novation or termination of the contract . The details shall be reported no later than the working day following the conclusion , modification , novation or termination of the contract , except where provided in acts adopted under paragraph 5 . The agreed termination of a contract or lapsing of a transaction – as opposed to its premature termination – shall not be considered as a modification. Information concerning derivative transactions shall be reported no later than one business day after the execution of a transaction or after a subsequent modification. A ‘business day’ for these purposes means a day that is a business day for both contracting parties and, in the case of a contract subject to CCP clearing, for the CCP concerned. They shall also maintain for a period of five years a recordkeeping of all the information needed to report.

Third parties shall be authorised to carry out the reporting provided for in paragraph 1 for the original counterparties, provided it is ensured that no details of the contract are reported twice.

The reporting obligations under subparagraph 1 can be satisfied by the CCP where the derivative contracts subject to the clearing obligation are cleared. When derivative contracts are subject to a process of trade compression, the reporting obligations under subparagraph 1 shall be satisfied by the operator of the trade compression service.

ESMA shall be empowered to examine whether a retrospective reporting obligation in respect of OTC derivative contracts can be introduced if the information in question is essential to the supervisory authorities. ESMA shall take the following criteria into account in reaching its decision:

(a) the technical requirements for submission of a report (notably whether transactions have been recorded electronically);

(b) the remaining times to maturity of outstanding transactions.

Before taking a decision, ESMA shall conduct a public consultation with the market participants. [Ams. 14 and 15]

2. All reporting shall be carried out, where possible, based on international industry open standards.

3. A counterparty which is subject to the reporting obligation may delegate the reporting of the details of the derivative contract to the other counterparty or a third party .

A counterparty that reports the full details of a contract to a trade repository on behalf of another counterparty shall not be considered in breach of any restriction on disclosure of information imposed by that contract or by any legislative, regulatory or administrative provision.

No liability resulting from that disclosure shall fall on the reporting entity or its directors or employees or other persons acting on its behalf .

4. In order to ensure consistent application of this Article, ESMA shall, in cooperation with EBA, the ESCB and the ESRB, develop draft regulatory technical standards to determine the details and type of the reports referred to in paragraphs 1 and 2 for the different classes , groups or categories of derivatives and for any retrospective effect including the modalities for back-loading and reporting of electronically recorded trades for all derivatives as well as criteria and conditions for retrospective reporting of outstanding derivative contracts entered into prior to the entry into force of this Regulation .

Those reports shall contain at least:

(a) the parties to the contract and, where different, the beneficiary of the rights and obligations arising from it are appropriately identified;

(b) the main characteristics of the contract, including the type, underlying, maturity, exercise, delivery date, price data and notional value ▐;

(ba) for derivatives that do not conform to a standard format, there shall be a placeholder format permitting competent authorities to detect the existence of such a trade and take any required regulatory measures;

(bb) a unique contract identifier.

ESMA, in coordination with EBA, EIOPA and the ESRB, shall submit those drafts to the Commission by 30 June 2012.

Where the draft regulatory technical standards concern wholesale energy products within the meaning of Regulation (EU) No …/2011 of the European Parliament and of the Council of … [on energy market integrity and transparency] (24) (25), ESMA shall consult the Agency for the Cooperation of Energy Regulators (ACER).

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. [Am. 19]

4a. In drafting the regulatory technical standards, ESMA shall be guided inter alia by the list of required reporting data in Annex I, Table I of Commission Regulation (EC) No 1287/2006 implementing Directive 2004/39/EC.

5. In order to ensure uniform conditions of application of paragraphs 1 and 2, ESMA shall, in coordination with EBA, EIOPA and the ESRB, develop draft implementing technical standards to determine the format and frequency of the reports referred to in paragraphs 1 and 2 for the different classes of derivatives.

ESMA shall submit such draft implementing technical standards ▐ to the Commission by 30 June 2012.

Where the draft regulatory technical standards concern wholesale energy products within the meaning of Regulation (EU) No …/2011 [on energy market integrity and transparency] (26),ESMA shall consult the Agency for the ACER.

Power is conferred on the Commission to adopt the draft implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No°1095/2010 .

Article 7

Non-financial counterparties

1. A non-financial counterparty shall be subject to the reporting obligation set out in Article 6(1).

2. Where a non-financial counterparty takes positions in OTC derivative contracts such that the rolling average position over 50 business days exceeds the threshold to be determined pursuant to paragraph 3(b), it shall be subject to the clearing obligation set out in Article 3 ▐.

The clearing obligation shall subsist as long as the non-financial counterparty’s net positions and exposures in OTC derivative contracts exceed the clearing threshold and shall end once these net positions and exposures are below the clearing threshold over a specified time period.

The competent authority designated in accordance with Article 48 of Directive 2004/39/EC shall ensure that the obligation under the first subparagraph is met.

Discharge of the clearing obligation referred to in subparagraph 1 shall be completed within six month.

2a. In calculating the positions referred to in paragraph 2, OTC derivative contracts entered into by a non-financial counterparty that are objectively measurable as directly linked to the hedging of commercial or treasury financing activity of that counterparty shall not be taken into account.

3. In order to ensure consistent application of this Article, ESMA shall, after consulting EBA, the ESRB and other relevant authorities, develop draft regulatory technical standards specifying:

▐

(b) the clearing threshold;

(ba) criteria for establishing which OTC derivative contracts are objectively measurable as directly linked to the commercial or treasury financing activity.

Those thresholds shall be determined taking into account the systemic relevance of the sum of net positions and exposures by counterparty per class of derivatives.

ESMA shall, after consulting EBA, the ESRB and other relevant authorities, submit those draft regulatory standards to the Commission by 30 June 2012 .

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) 1095/2010. [Am. 19]

▐

In preparing for determination of the clearing threshold and the criteria for establishing which OTC derivative contracts are objectively measurable as directly linked to commercial or treasury financing activity, ESMA will engage in public consultations and give non-financial counterparties the chance to state their views.

▐

5. The Commission, after consulting the ESAs and other relevant authorities, shall periodically review the thresholds referred to in paragraph 3 and amend them, where necessary.

Article 8

Risk mitigation techniques for OTC derivative contracts not cleared by a CCP

1. Financial counterparties or the non-financial counterparties referred to in Article 7(2), that enter into an OTC derivative contract not cleared by a CCP, shall ensure with due diligence that appropriate prudential procedures and arrangements are in place to measure, monitor and mitigate operational, market and credit risk, including at least:

(a) adequate electronic means ensuring the timely confirmation of the terms of the OTC derivative contract;

(b) standardised processes which are robust, resilient and auditable in order to reconcile portfolios, to manage the associated risk and to identify disputes between parties early and resolve them, and to monitor the value of outstanding contracts.

For the purposes of point (b), the value of outstanding contracts shall be marked-to-market on a daily basis and risk management procedures shall require the timely, accurate and appropriately segregated exchange of collateral or capital-backing commensurate with the risk, in accordance with the applicable regulatory capital requirements for financial counterparties .

Financial counterparties and the non-financial counterparties referred to in Article 7(2) shall offer counterparties the option of segregation of initial margin at the outset of the contract .

ESMA shall regularly monitor the activity in derivatives not eligible for clearing in order to identify cases where a particular class of contracts may pose systemic risk. ESMA, after consulting ESRB, shall take action in order to prevent the further accumulation of contracts in such a class.

The competent authority and ESMA shall ensure that prudential procedures and arrangements aim to prevent regulatory arbitrage between cleared and non-cleared derivative transactions and reflect risk transfers arising from derivatives contracts.

ESMA and competent authorities shall review margin standards in order to prevent regulatory arbitrage in conformity with Article 37.

1b For pension scheme investments under Directive 2003/41/EC or a scheme where the law of the Member State recognises the scheme for retirement planning, resilient bilateral collateralisation of derivatives used for risk mitigation shall take account of counterparty creditworthiness. Capital requirements in prudential regulation shall be in line with those of centrally cleared contracts.

2. In order to ensure consistent application of this Article, ESMA shall develop draft regulatory technical standards specifying guidelines for appropriate prudential procedures and arrangements and margin standards referred in paragraph 1, as well as the maximum time lag between the conclusion of an OTC derivative contract and the confirmation referred to in paragraph 1(a).

ESMA shall submit those draft regulatory technical standards to the Commission by 30 June 2012.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. [Am. 19]

3. In order to ensure consistent application of this Article, the ESAs shall develop common draft regulatory technical standards specifying the arrangements and levels of collateral and capital required for compliance with paragraph 1(b) and the second subparagraph of paragraph 1.

The ESAs shall submit those common draft regulatory technical standards to the Commission by 30 June 2012.

Depending on the legal nature of the counterparty, power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010, of Regulation (EU) No 1094/2010 or Regulation (EU) No 1095/2010.[Am. 19]

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Article 9

Penalties

1. Member States – taking into consideration the Commission's Communication of 8 December 2010 on reinforcing sanctioning regimes in the financial services sector and after consulting ESMA – shall lay down the rules on penalties applicable to infringements of the rules under this Title and shall take all measures necessary to ensure that they are implemented. Those penalties shall include at least administrative fines. The penalties provided for shall be effective, proportionate and dissuasive.

2. Member States shall ensure that the competent authorities responsible for the supervision of financial, and, where appropriate, non-financial counterparties disclose every penalty that has been imposed for infringements of Articles 3 to 8 to the public, unless such disclosure would seriously jeopardise the financial markets or cause disproportionate damage to the parties involved. Member States shall, at regular intervals, publish assessment reports on the effectiveness of the penalty rules being applied.

By 30 June 2012, the Member States shall notify the rules referred to in paragraph 1 to the Commission. They shall notify the Commission of any subsequent amendment thereto without delay.

3. The Commission, with the assistance of ESMA, shall verify that the administrative penalties referred to in paragraph 1 and the thresholds referred to in Article 7 (1) and (2) are effectively and consistently applied.

3a. An infringement of the rules under this Title shall not affect the validity of an OTC derivative contract or the possibility for the parties to enforce the provisions of an OTC derivative contract. An infringement of the rules under this Title shall not give rise to any right to compensation from a party to an OTC derivative contract.

Title III

Authorisation and supervision of CCPs

Chapter 1

Conditions and Procedures for the Authorisation of a CCP

Article 10

Authorisation of a CCP

1. Where a CCP that is a legal person established in the Union and has access to adequate liquidity intends to perform its services and activities, it shall apply for authorisation to the competent authority of the Member State where it is established.

Such liquidity could result from access to central bank liquidity or to creditworthy and reliable commercial bank liquidity, or a combination of both. Access to liquidity could result from an authorisation granted in accordance with Article 6 of Directive 2006/48/EC or other appropriate arrangements.

2. The authorisation shall be effective for the entire territory of the Union.

3. The authorisation to the CCP shall be granted only for activities linked to clearing and shall specify the services or activities which the CCP is authorised to provide or perform including the classes of financial instruments covered by the authorisation.

4. A CCP shall comply at all times with the conditions necessary for the initial authorisation.

A CCP shall, without undue delay, notify the competent authority of any material changes affecting the conditions for the initial authorisation.

5. In order to ensure consistent application of this Article, ESMA shall, after consulting EBA, develop draft regulatory technical standards specifying the criteria for adequate liquidity referred to in paragraph 1.

ESMA shall, after consulting EBA, submit those draft regulatory technical standards to the Commission by 30 June 2012.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. [Am. 19]

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Article 11

Extension of activities and services

1. A CCP wishing to extend its business to additional services or activities not covered by the initial authorisation shall submit a request for extension. The offering of clearing services in a different currency or in financial instruments that significantly differ in their risk characteristics from those for which the CCP has already been authorised shall be considered an extension of that authorisation.

The extension of an authorisation shall follow the procedure under Article 13.

2. Where a CCP wishes to extend its business into a Member State other than where it is established, the competent authority of the Member State of establishment shall immediately notify the competent authority of that other Member State.

Article 12

Capital requirements

1. A CCP shall have a permanent and available initial capital of at least EUR 10 million to be authorised pursuant to Article 10.

2. Capital, together with retained earnings and reserves of a CCP, shall be proportionate to the size and risk involved in the CCP’s business operations. It shall at all times be sufficient to ensure an orderly winding-down or restructuring of the activities over an appropriate time span and that the CCP is adequately protected against operational and residual risks.

3. In order to ensure consistent application of this Article, ESMA shall, in close cooperation with the ESCB and after consulting EBA, develop draft regulatory technical standards specifying requirements regarding the capital, retained earnings and reserves of a CCP referred to in paragraph 2 , including the frequency or timing when these shall be updated .

ESMA shall, in close cooperation with the ESCB and after consulting EBA, submit those draft regulatory technical standards by 30 June 2012.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. [Am. 19]

Article 13

Procedure for granting and refusing authorisation

1. The competent authority shall only grant authorisation where it is fully satisfied that the applicant CCP complies with all the requirements set out in this Regulation and the requirements adopted pursuant to Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (27), and on condition that a positive opinion as referred to in Article 15 has been delivered by ESMA .

2. For the initial authorisation, the applicant CCP shall provide all information necessary to enable the competent authority to satisfy itself that the applicant CCP has established, at the time of initial authorisation, all the necessary arrangements to meet its obligations set out in this Regulation. The competent authority shall immediately transmit all information received from the applicant CCP to ESMA and the college referred to in Article 14(1).

3. For the initial authorisation, within four months of the submission of a complete application the competent authority shall inform the applicant CCP in writing whether the authorisation has been granted.

For authorisation for an extension of activities and services, within two months of the submission of a complete application the competent authority shall inform the applicant CCP in writing whether the authorisation has been granted.

Article 14

Cooperation

1. The competent authority of the CCP’s Member State of establishment shall , in cooperation with ESMA, establish a college in order to facilitate the exercise of the tasks referred to in Articles 10, 11, 46 and 48.

The college shall be chaired by ESMA and consist of no more than seven members, including the competent authority of the Member State of establishment of the CCP and the authority responsible for the oversight of the CCP and the central banks of issue of the most relevant currencies of the financial instruments cleared as well as the competent authorities responsible for the supervision of the clearing members of the CCP established in the three Member States with the largest contributions to the default fund of the CCP referred to in Article 40 on an aggregate basis.

2. The college shall, without prejudice to the responsibilities of the competent authorities under this Regulation, ensure:

(a) the preparation of the ▐ opinion referred to in Article 15;

(b) the exchange of information, including requests for information pursuant to Article 21; ▐

(d) the coordination of supervisory examination programmes based on a risk assessment of the CCP;

(e) the improvement of efficiency of supervision by removing unnecessary duplication of supervisory requirements;

(f) consistency in the application of supervisory practices;

(g) the determination of procedures and contingency plans to address emergency situations, as referred to in Article 22.

3. The establishment and functioning of the college shall be based on a written agreement among all its members.

That agreement shall in particular determine the practical arrangements for cooperation between the competent authority and ESMA and may determine tasks to be entrusted to the competent authority of the Member State of establishment of a CCP or ESMA .

If a majority of the members of the college considers that the competent authority of the Member State of establishment of the CCP is not exercising its responsibilities in an appropriate manner and that it constitutes a threat to financial stability, ESMA shall issue a decision as to whether it considers the supervision by the competent authority of the Member State of establishment of the CCP to be appropriate and constitutes a threat to financial stability.

If ESMA considers that the supervision is inappropriate, ESMA may impose corrective measures on competent authorities in accordance with Regulation (EU) No. 1095/2010.

3a. In order to ensure consistent application of this Article, ESMA shall, in close cooperation with the ESCB and after consulting EBA, develop draft regulatory technical standards specifying the risk assessment referred to in Article 14(2) and Article 15(1).

ESMA shall, in close cooperation with the ESCB and after consulting EBA, submit those draft regulatory technical standards to the Commission by 30 June 2012.

Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. [Am. 19]

Article 15

Opinion of the college

1. For the purposes of the initial authorisation, the competent authority of the Member State where the CCP is established shall conduct a risk assessment of the CCP and submit a report to ESMA within four months of the submission of a complete application by the CCP .

1a. For the purposes of authorization for extension of activities and services, the competent authority of the Member State where the CCP is established shall conduct a risk assessment of the extension of activities and services on the CCP and submit a report to the college within one month.

The college shall reach an opinion, on the basis of that report, as to whether the level of the risks assessed is conducive to the safe functioning of the CCP within one month of receiving it.

2. A positive or negative opinion of the college requires agreement among a simple majority of members, including the competent authority of the Member State where the CCP is established, with the assessment of the competent authority of the Member State where the CCP is established. In case of delay or disagreement, ESMA shall facilitate the adoption of a ▐ opinion in accordance with its settlement of disagreement powers under Article 19 of Regulation (EU) No 1095/2010 and its general coordination function under Article 21 of the same Regulation. ▐

Article 16

Withdrawal of authorisation

1. The competent authority of the Member State of establishment shall withdraw the authorisation in any of the following circumstances:

(a) where the CCP has not made use of the authorisation within 12 months, expressly renounces the authorisation or has provided no services or performed no activity for the preceding six months;

(b) where the CCP has obtained the authorisation by making false statements or by any other irregular means;

(c) where the CCP is no longer in compliance with the conditions under which authorisation was granted;

(d) has seriously and repeatedly infringed the requirements set out in this Regulation.

1a. The procedure for the decision to withdraw the authorisation shall require a positive opinion of the same college as referred to in the original authorisation as well as a positive opinion from ESMA.

2. ESMA may, at any time, request that the competent authority of the Member State where the CCP is established examine whether the CCP is still in compliance with the conditions under which the authorisation is granted.

3. The competent authority may limit the withdrawal to a particular service, activity, or financial instrument. A decision on withdrawal shall apply throughout the territory of the Union.

Article 17

Review and evaluation

The competent authorities shall, at least on an annual basis, review the arrangements, strategies, processes and mechanisms implemented by a CCP with respect to compliance with this Regulation and evaluate the market, operational and liquidity risks to which the CCP is, or might be, exposed.

The review and evaluation shall have regard to the size, systemic importance, nature, scale and complexity of the activities of the CCP as well as the criteria identified in Article 4(3) .

The competent authority shall call upon a CCP which is not complying with the requirements of this Regulation to take the necessary measures.

The CCP shall be subject to on-site inspection by ESMA.

Chapter 2

Supervision and oversight of CCPs

Article 18

Competent authorities

1. Each Member State shall designate the competent authority responsible for carrying out the duties resulting from this Regulation for the authorisation, supervision and oversight of CCPs established in its territory and shall inform the Commission and ESMA thereof.

▐

2. Each Member State shall ensure that the competent authority has the supervisory and investigatory powers necessary for the exercise of their functions.

3. Each Member State shall ensure that appropriate administrative measures, in conformity with national law, can be taken or imposed against the natural or legal persons responsible where the provisions in this Regulation have not been complied with.

Those measures shall be effective, proportionate and dissuasive.

4. ESMA shall publish a list of the competent authorities designated in accordance with paragraph 1 on its website.

Article 18a

Professional secrecy

1. The obligation of professional secrecy shall apply to all persons who work or have worked for the competent authorities designated in accordance with Article 18, ESMA, or auditors and experts instructed by the competent authorities or ESMA. No confidential information they may receive in the course of their duties may be divulged to any person or authority whatsoever, except in summary or aggregate form such that an individual CCP, trade repository or any other person cannot be identified, without prejudice to cases covered by criminal law or taxation or the other provisions of this Regulation.

2. Where a CCP has been declared bankrupt or is being compulsorily wound up, confidential information which does not concern third parties may be divulged in civil or commercial proceedings where necessary for carrying out the proceeding.

3. Without prejudice to cases covered by criminal law and tax law, the competent authorities, ESMA, bodies or natural or legal persons other than competent authorities which receive confidential information pursuant to this Regulation may use it only in the performance of their duties and for the exercise of their functions, in the case of the competent authorities, within the scope of this Regulation or, in the case of other authorities, bodies or natural or legal persons, for the purpose for which such information was provided to them or in the context of administrative or judicial proceedings specifically related to the exercise of those functions, or both. Where ESMA, the competent authority or another authority, body or person communicating information consents thereto, the authority receiving the information may use it for other non-commercial purposes.

4. Any confidential information received, exchanged or transmitted pursuant to this Regulation shall be subject to the conditions of professional secrecy laid down in paragraphs 1, 2 and 3. However, those conditions shall not prevent ESMA, the competent authorities or the relevant central banks from exchanging or transmitting confidential information in accordance with this Regulation and with other legislation applicable to investment firms, credit institutions, pension funds, UCITS, AIFMs, insurance and reinsurance intermediaries, insurance undertakings, regulated markets or market operators or otherwise with the consent of the competent authority or other authority or body or natural or legal person that communicated the information.

5. Paragraphs 1, 2 and 3 shall not prevent the competent authorities from exchanging or transmitting confidential information, in accordance with national law, that has not been received from a competent authority of another Member State.

Chapter 3

Cooperation

Article 19

Cooperation between authorities

1. Competent authorities shall cooperate closely with each other , with ESMA and, if necessary, with the ESCB . ESMA shall be provided with adequate resources by the EU institutions in order to effectively perform the tasks it is allocated in this Regulation.

2. The competent authorities shall, in the exercise of their general duties, duly consider the potential impact of their decisions on the stability of the financial system in all other Member States concerned, in particular the emergency situations referred to in Article 22, based on the available information at the time.

▐

Article 21

Exchange of information

1. Competent authorities shall provide ESMA and one another with the information required for the purposes of carrying out their duties under this Regulation.

2. Competent authorities and other bodies or natural and legal persons receiving confidential information in the exercise of their duties under this Regulation shall only use it in the course of their duties and shall not be permitted to publish or otherwise make available any such confidential information for any other purpose except as expressly set out in this Regulation .

3. ESMA shall transmit confidential information relevant to the performance of their tasks to the competent authorities responsible for the supervision of the CCPs. Competent authorities and other relevant authorities shall communicate the necessary information for the exercise of their duties set out in this Regulation to ESMA and other competent authorities.

4. Competent authorities shall communicate information to the central banks of the ESCB where such information is relevant for the exercise of their duties.

Article 22

Emergency situations

The competent authority or any other authority shall inform ESMA and other relevant authorities without undue delay of any emergency situation relating to a CCP, including developments in financial markets, which may have an adverse effect on market liquidity and the stability of the financial system in any of the Member States where the CCP or one of its clearing members are established.

Chapter 4

Relations with third countries

Article 23

Third countries

1. A CCP established in a third country may provide clearing services to entities established in the Union only where that CCP is recognised by ESMA.

The authorisation or extension or withdrawal of the authorisation shall be subject to the conditions and procedures laid down in Articles 10 to 16.

Third-country CCPs shall be subject to review by a process of similar rigueur to the one EU CCPs are subject to.

The Commission may adopt a decision wholly or partially granting an exemption from authorisation conditions and procedures provided that this is done on a reciprocal basis and that the following conditions are met:

(a) the Commission has adopted a decision in accordance with paragraph 3; and

(b) comparable exemptions are granted, in the third country concerned, to CCPs established in the Union.

2. ESMA shall , in consultation with the competent authorities within the Union and with EBA and relevant members of the ESCB of the Member States in which the CCP provides or intends to provide clearing services and the relevant members of the ESCB responsible for the oversight of the CCPs with whom interoperability arrangements have been established, recognise a CCP from a third country, where the following conditions are met:

(a) the Commission has adopted a delegated act in accordance with paragraph 3; or

(b) the CCP is authorised in, and is subject to, effective supervision in that third country;

(ba) the third country is the subject of a decision by the Commission stating that the standards to prevent money laundering and terrorist financing meet the Financial Action Task Force requirements and are to the same effect as the requirements set out in Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (28);

(bb) the third country has signed an agreement with the home Member State of the authorised CCP which fully complies with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital and ensures an effective exchange of information in tax matters, including, if any, multilateral tax agreements;

(bc) the risk management standards of the CCP have been reviewed by ESMA and assessed as compliant with the standards set under Title IV;

(