Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on OTC derivatives, central counterparties and trade repositories
Date: 2010-09-15
Institutions: Council of the European Union
Subjects: anti-crisis plan, contract, credit institution, economic policy, economic recession, market supervision, reflation

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EUROPEAN COMMISSION 

Brussels, 15.9.2010 
COM(2010) 484 final 

2010/0250 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on OTC derivatives, central counterparties and trade repositories 

{SEC(2010) 1058} 
{SEC(2010) 1059} 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

The  financial  crisis  has  brought  over-the-counter  (OTC)  derivatives  to  the  forefront  of 
regulatory attention. The near-collapse of Bear Sterns in March 2008, the default of Lehman 
Brothers  on  15  September  2008  and  the  bail-out  of  AIG  the  following  day  highlighted  the 
shortcomings in the functioning of the OTC derivatives market. Within that market, regulators 
devoted  particular  attention  to  the  role  that  credit  default  swaps  (CDS)  played  during  the 
crisis. 

The  Commission  responded  rapidly.  In  its  broad  Communication  of  4  March  2009  on 
“Driving European Recovery”1, the Commission committed to deliver, on the basis of a report 
on  derivatives  and  other  complex  structured  products,  appropriate  initiatives  to  increase 
transparency  and  to  address  financial  stability  concerns.  On  3  July  2009,  the  Commission 
adopted a first Communication2 that specifically examined the role played  by derivatives in 
the  financial  crisis  and  looked  at  the  benefits  and  risks  of  derivatives  markets.  That 
Communication assessed how the identified risks could be reduced3.  

In September 2009, G-20 Leaders agreed in Pittsburgh that: 

All  standardised  OTC  derivative  contracts  should  be  traded  on  exchanges  or 
electronic  trading  platforms,  where  appropriate,  and  cleared  through  central 
counterparties  by  end-2012  at  the  latest.  OTC  derivative  contracts  should  be 
reported to trade repositories. Non-centrally cleared contracts should be subject to 
higher capital requirements.  

In  June  2010,  G20  Leaders  in  Toronto  reaffirmed  their  commitment  and  also  committed  to 
accelerate  the  implementation  of  strong  measures  to  "improve  transparency  and  regulatory 
oversight  of  over-the-counter  derivatives  in  an  internationally  consistent  and  non-
discriminatory way". 

On  20  October  2009,  the  Commission  adopted  a  second  Communication4  that  set  out  the 
future  policy  actions  the  Commission  intended  to  propose  to  increase  transparency  of  the 
derivatives  market,  reduce  counterparty  and  operational  risk  in  trading  and  enhance  market 
integrity  and  oversight.  That  Communication  also  announced  the  Commission's  intention  to 
proceed with legislative proposals in 2010, to ensure implementation of the G20 commitments 
to clear  standardised derivatives5,  and that Central  Counterparties (CCPs) comply  with  high 
prudential  standards  and  adequate  regulation  of  trade  repositories.  This  proposal  for  a 

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COM(2009) 114.  
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0114:FIN:EN:PDF. 
“Ensuring efficient, safe and sound derivatives markets”, COM(2009)332. The document is available at 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0332:FIN:EN:PDF. 
The  Communication  is  accompanied  by  a  Staff  Working  Paper,  which  contains  an  overview  of  (i) 
derivatives  markets  and  (ii)  OTC  derivative  market  segments,  as  well  as  an  assessment  of  the 
effectiveness of current measures to reduce risks, notably as regards CDS. The document is available at 
http://ec.europa.eu/internal_market/docs/derivatives/report_en.pdf. 
“Ensuring  efficient,  safe  and  sound  derivatives  markets:  Future  policy  actions”  -  COM(2009)  563. 
Available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2009:0563:FIN:EN:PDF. 
http://www.g20.org/Documents/pittsburgh_summit_leaders_statement_250909.pdf 

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the  Commission's  commitments 

Regulation  delivers 
to  proceed  rapidly  and  with 
determination.  It  takes  also  into  account  the  strong  support  and  the  many  of  the  measures 
suggested  in  the  Resolution  of  the  European  Parliament  of  15  June  2010,  on  "Derivatives 
markets: future policy actions" (Langen-report). 

As already indicated above, this initiative is part of a larger international effort to increase the 
stability  of  the  financial  system  in  general,  and  the  OTC  derivatives  market  in  particular. 
Given  the  global  nature  of  the  OTC  derivatives  market  an  internationally  coordinated 
approach is crucial. It is therefore important that this proposal takes into account what other 
jurisdictions  intend to do or have already done in the area of OTC derivatives regulation to 
avoid the risk of regulatory arbitrage. 

In  this  context,  this  proposal  is  consistent  with  the  recently  adopted  US  legislation  on  OTC 
derivatives,  the  so-called  Frank-Dodd  Act.  The  Act  has  a  broadly  identical  scope  of 
application. It contains similar provisions requiring the reporting of OTC derivative contracts 
and the clearing of eligible contracts. Furthermore, it puts in place strict capital and collateral 
requirements  for  OTC  derivatives  that  remain  bilaterally  cleared.  Finally,  it  puts  in  place  a 
regulatory  framework  for  trade  repositories and  upgrades  the  existing  regulatory  framework 
for CCPs. Similarly to the Commission's proposal, the Act foresees the further elaboration of 
a number of technical rules. 

2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND 
IMPACT ASSESSMENT 

Since  October  2008,  the  Commission  services  have  been  engaged  in  almost  continuous, 
extensive  consultation  with  stakeholders  to  determine  the  appropriate  policy  response.  This 
interaction  has  taken  the  form  of  many  bilateral  and  multilateral  meetings,  two  public 
consultations and a conference.  

Initially the Commission services’ attention focused solely on the Credit Default Swap (CDS) 
market  which  was  at  the  centre  of  attention  with  Bear  Sterns  and  Lehman's.  In  order  to 
facilitate  the  monitoring  of  the  major  dealers’  commitment  in  this  area,  the  Commission 
established  the  Derivatives  Working  Group  (DWG),  that  included  representatives  from  the 
financial  institutions  that  committed  to  clear  European  referenced  CDS  by  July  20096, 
representatives  from  central  counterparties,  trade  repositories  and  other  relevant  market 
participants  and  from  relevant  European  (ECB,  CESR,  CEBS  and  CEIOPS)7  and  national 
(AMF, BaFin and FSA)8 authorities. In addition to the meetings of the DWG, the Commission 
held separate, ad-hoc bilateral and multilateral meetings with a large number of stakeholders 
in the CDS market. 

Following  industry  compliance  with  the  above-mentioned  commitment  and  to  prepare 
legislative  measures,  the  Commission  formed  a  Member  States  Experts  Working  Group  on 
Derivatives  and  Market  Infrastructures.  It  discussed  regulatory  approaches  with  experts 

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The letter of commitment and the list of signatories of the letter can be found on DG MARKT’s website 
at http://ec.europa.eu/internal_market/financial-markets/derivatives/index_en.htm#cds. 
Respectively  the  European  Central  Bank,  the  Committee  of  European  Securities  Regulators,  the 
Committee of European Banking Supervisors, and Committee of European Insurance and Occupational 
Pensions Supervisors. 
Respectively the Autorité des  marchés financiers, Bundesanstalt für Finanzdienstleistungsaufsicht and 
the Financial Services Authority. 

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representing  Member  States,  the  ECB,  CESR  and  CEBS.  It  held  a  series  of  meetings  from 
January to July 2010.  

The  Commission  has  also  gained  valuable  information  by  participating  in  various 
international  fora,  in  particular  the  OTC  Derivatives  Regulators  Group  and  the  Basel 
Committee's  Risk  Management  and  Modelling  Group.  The  Commission  has  recently  also 
gained  observer  status  on  the  steering  committee  of  the  joint  CPSS-IOSCO9  working  group 
that  is  currently  reviewing  the  recommendations  for  CCPs  and  preparing  recommendations 
for trade repositories. In addition, the Commission has engaged in frequent dialogue with non-
EU authorities, in particular US authorities (the CFTC, the SEC10, the Federal Reserve Bank 
of New York and the Federal Reserve Board and the US Congress) and is co-chairing a work 
stream of the Financial Stability Board (FSB) focusing on addressing the challenges related to 
the implementation of the reporting, clearing and trading obligations agreed at G20 level. 

In parallel with the publication of the first Communication, DG MARKT launched a public 
consultation11  from  3  July  to  31  August  2009.  The  Commission  services  received  111 
responses, 100 of which have been authorised for publication and have been published on the 
consultation  website12.  A  summary  of  responses  including  an  introductory  analysis  of  the 
public  stakeholder  consultation  is  available  on  DG  MARKT’s  website13.  This  was  followed 
by  a  major  conference  in  Brussels,  on  25  September  200914.  Three  panels  of  academics, 
industry  representatives  and  regulators,  coming  from  the  EU  and  the  US,  presented  their 
views on the need (or lack thereof) to reform the OTC derivatives market to an audience of 
more than 400 participants and answered their questions. The conference broadly confirmed 
the views and information obtained through the public consultation. 

A second open consultation was organised from 14 June to 10 July 2010 to obtain feedback 
from  interested  stakeholders  on  the  contours  of  the  legislative  measures.  The  Commission 
services  received  210  responses,  which  were  for  the  most  part  supportive  of  the  suggested 
reforms.15  

3. 

IMPACT ASSESSMENT 

The  Regulation  is  accompanied  by  an  impact  assessment16  analysing  the  options  to  reduce 
systemic  risk  by  increasing  the  safety  and  efficiency  of  the  OTC  derivatives  market. 
Following the analysis, the impact assessment concludes that the largest net benefits would be 
achieved through the adoption of measures that would: 

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Respectively the Committee on Payment and Settlement Systems and the International Organisation of 
Securities Commissions. 
Respectively  the  Commodity  Futures  Trading  Commission  and  the  Securities  and  Exchange 
Commission. 
http://ec.europa.eu/internal_market/consultations/2009/derivatives_en.htm. 
http://circa.europa.eu/Public/irc/markt/markt_consultations/library?l=/financial_services/derivatives_ 
derivatives&vm=detailed&sb=Title. 
http://ec.europa.eu/internal_market/consultations/docs/2009/derivatives/summaryderivcons_en.pdf. 
The  conference’s  recordings  and  documents  are  available  on  DG  MARKT’s  website  at 
http://ec.europa.eu/internal_market/financial-markets/derivatives/index_en.htm#conference. 
The non-confidential responses can be found on: 
http://circa.europa.eu/Public/irc/markt/markt_consultations/library?l=/financial_services/infrastructures
&vm=detailed&sb=Title. 
The 
markets/index_en.htm. 

impact  assessment  report  can  be  found  on  http://ec.europa.eu/internal_market/financial-

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•  require  the  use  of  CCP  clearing  for  OTC  derivatives  that  meet  predefined  eligibility 

criteria; 

•  set specific targets for legal and process standardisation; 

•  set specific targets for the bilateral clearing of OTC derivatives transactions;  

•  require market participants to report all the necessary information on their OTC derivatives 
portfolios to a trade repository or, if that would not be possible, directly to regulators; and 

•  require the publication of aggregate position information. 

4. 

LEGAL ELEMENTS OF THE PROPOSAL 

4.1. 

Legal basis 

The  proposal  is  based  on  Article  114  TFEU  as  the  most  appropriate  legal  basis  for  a 
Regulation  in  this  field.  A  Regulation  is  considered  to  be  the  most  appropriate  legal 
instrument  to  introduce  a  mandatory  requirement  directed  to  all  actors  to  clear  standardised 
OTC derivatives through CCPs and to ensure that CCPs, that will as a consequence assume 
and  concentrate  significant  risk,  are  subject  to  uniform  prudential  standards  in  the  EU.  A 
Regulation  is  the  appropriate  legal  instrument  to  confer  new  powers  on  ESMA  as  the  sole 
authority with the responsibility to register and exercise surveillance of trade repositories in 
the EU.  

4.2. 

Subsidiarity and proportionality 

A uniform process at EU-level is needed to determine which OTC Derivatives are eligible for 
mandatory clearing through CCPs. This can not be left to the discretion of Member States as 
this  would  give  rise  to  different  and  inconsistent  application  of  the  clearing  obligation 
throughout the EU. A central role needs therefore to be given to the  European Commission 
and  ESMA  in  identifying  the  eligible  class  of  derivatives  that  must  be  centrally  cleared. 
Furthermore, as the use of CCPs becomes compulsory under EU-law, they must be subject to 
rigorous organisational, conduct of business and prudential requirements. 

In respect of authorisation and supervision of CCPs the Regulation aims at striking a balance 
between  the  need  for  an  important  central  role  of  ESMA,  the  competences  of  national 
authorities, and the interests of other competent authorities. It takes into account the potential 
fiscal responsibility of Member States and the cross-border nature of the CCP business.  

ESMA will have a central role in the college of competent authorities for the authorisation, 
withdrawal of authorisation and amendment of authorisation of a CCP. In order to establish a 
single process and avoid discrepancies between Member States, ESMA is also responsible for 
recognising  a  CCP  from  a  third  country  that  seeks  to  provide  clearing  services  to  entities 
established in the European Union, if certain conditions are met. 

As  regards  the  reporting  requirement,  given  the  fact  that  information  reported  to  a  trade 
repository will be of interest to all competent authorities in the European Union and given the 
need to ensure that all competent authorities will have the same degree of unfettered access 
under  the  same  conditions  to  that  information,  this  should  be  regulated  at  the  EU-level. 

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ESMA  is  therefore  empowered  to  deal  with  both  the  registration  and  surveillance  of  trade 
repositories.  

For  these  reasons,  the  provisions  are  in  accordance  with  the  principles  of  subsidiarity  and 
proportionality as set out in Article 5 of the Treaty, as the objectives of the proposal cannot be 
sufficiently  achieved  by  the  Member  States  and  can  therefore  be  better  achieved  by  the 
European Union. 

4.3. 

Detailed explanation of the proposal 

4.3.1.  Title I (Subject matter, scope and definitions) 

The scope of the Regulation is wide and lays down uniform requirements covering financial 
counterparties,  non-financial  counterparties  (exceeding  certain  thresholds)  and  all  categories 
of OTC derivative contracts. Its prudential parts apply to central counterparties as a result of 
the clearing obligation and, for the reporting requirement, to trade repositories. It is important 
to  note,  however,  that  the  authorisation  and  supervision  requirements  for  CCPs  apply 
irrespective  of  the  financial  instrument  the  CCPs  clear:  OTC  or  other.  This  is  clarified  in 
Article 1(3). Exemptions are explicitly foreseen for the members of the European System of 
Central  Banks,  public  bodies  charged  with  or  intervening  in  the  management  of  the  public 
debt,  and  to  multilateral  development  banks,  in  order  to  avoid  limiting  their  powers  to 
intervene to stabilise the market, if and when required. 

4.3.2.  Title II (Clearing, reporting and risk mitigation of OTC Derivatives) 

This part of the regulation is central to implementing the obligation to clear all 'standardised 
OTC  derivatives'  as  agreed  in  the  G-20.  In  order  to  implement  this  commitment  into 
legislative obligations, 'standardised' contracts will mean those contracts that are eligible for 
clearing  by  CCPs.  In  order  to  apply  this,  the  Regulation  establishes  a  process  that  will  take 
into account the risk aspects connected to mandatory clearing. The process is devised so as to 
ensure that a clearing obligation for OTC derivative contracts will in practice achieve its final 
objective of reducing risk in the financial system, rather than increasing it: forcing a CCP to 
clear OTC contracts that it is unable to risk-manage may have adverse repercussions on the 
stability of the system. 

However, in order to establish a process that ensures that as many OTC contracts as possible 
will be cleared, the Regulation introduces two approaches to determine which contracts must 
be cleared: 

(1) 

(2) 

a  'bottom-up'  approach,  according  to  which  a  CCP  decides  to  clear  certain 
contracts  and  is  authorised  to  do  so  by  its  competent  authority,  who  is  then 
obliged to inform ESMA once it approves the CCP to clear those contracts. 
ESMA  will  then  have  the  powers  to  decide  whether  a  clearing  obligation 
should apply to all of those contracts in the EU. ESMA will need to base that 
decision on certain objective criteria;  

a 'top-down' approach according to which ESMA, together with the European 
Systemic  Risk  Board,  will  determine  which  contracts  should  potentially  be 
subject  to  the  clearing  obligation.  This  process  is  important  to  identify  and 
capture those contracts in the market that are not yet being cleared by a CCP. 

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Both  approaches  are  necessary  because,  on  the  one  hand,  meeting  the  G20  clearing 
commitment  cannot  be  left  entirely  to  the  initiative  of  the  industry.  On  the  other  hand,  a 
regulatory check at European level of the appropriateness of certain arrangements is necessary 
before the clearing obligation enters into force. 

It is important to note that counterparties that are subjected to the clearing obligation cannot 
simply avoid the requirement by deciding not to participate in a CCP. If those counterparties 
do  not  meet  the  participation  requirements  or  are  not  interested  in  becoming  clearing 
members, they must enter into the necessary arrangements with clearing members to access 
the CCP as clients. 

Furthermore, and in order to avoid the erection of barriers and to preserve the global nature of 
OTC derivatives, CCPs should not be allowed to accept only those transactions concluded on 
execution venues with which they have a privileged relationship or which are part of the same 
group. For these reasons, a CCP that has been authorised to clear eligible derivative contracts 
is required to accept clearing such contracts on a non-discriminatory basis, regardless of the 
venue of execution. 

As regards non-financial (corporate) counterparties, they will in principle not be subject to the 
rules  of  this  Regulation,  unless  their  OTC  derivatives  positions  reach  a  threshold  and  are 
considered  to  be  systemically  important.  Because  their  derivatives  activities  are  generally 
assumed to cover those derivatives that are directly linked to their commercial activity rather 
than speculation, those derivatives positions will not be covered by this Regulation. 

In  concrete  terms,  this  means  that  the  clearing  obligation  will  only  apply  to  those  OTC 
contracts  of  non-financial  counterparties  that  are  particularly  active  in  the  OTC  derivatives 
market and if this is not a direct consequence of their commercial activity. For example, this 
may be the case for energy suppliers that sell future production, agricultural firms fixing the 
price at which they are going to sell their crops, airlines fixing the price of their future fuel 
purchases  or  any  commercial  companies  that  must  legitimately  hedge  the  risk  arising  from 
their specific activity. 

There  are,  however,  reasons  for  not  granting  non-financial  counterparties  a  full  exemption 
from the scope of this Regulation. 

First, non-financial  counterparties  are active participants in the OTC derivatives market and 
often  transact  with  financial  counterparties.  Excluding  them  entirely  would  diminish  the 
effectiveness of the clearing obligation. Second, some non-financial counterparties may take 
systemically  important  positions  in  OTC  derivatives.  Leaving  systemically  relevant  non-
financial  counterparties  whose  failure  may  have  a  significant  negative  effect  on  the  market 
completely  outside  the  scope  of  regulatory  attention  would  not  be  an  acceptable  course  of 
action.  Third,  a  full  exclusion  of  non-financial  counterparties  could  lead  to  regulatory 
arbitrage.  A  financial  counterparty  could  easily  circumvent  the  obligations  set  out  in  the 
Regulation by establishing a new non-financial entity and direct its OTC derivative business 
through  it.  Finally,  their  inclusion  in  the  scope  of  application  is  also  necessary  to  ensure 
global  convergence  with  third  countries.  The  US  legislation  does  not  provide  a  complete 
exemption of non-financial counterparties from the reporting and the clearing obligations. 

In view of the above, the Regulation sets out a process that helps to identify the non-financial 
institutions  with  systemically  important  positions  in  OTC  derivatives  and  subjects  them  to 

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certain obligations specified under the Regulation. The process is based on the definition of 
two thresholds: 

a) an information threshold;  

b) a clearing threshold . 

These  thresholds  will  be  specified  by  the  European  Commission  on  the  basis  of  draft 
regulatory  standards  proposed  by  ESMA,  in  consultation  with  the  European  Systemic  Risk 
Board  ("ESRB")  and  other  relevant  authorities.  For  example,  in  case  of  energy  markets, 
ESMA  would  have  to  consult  the  Agency  for  the  Cooperation  of  Energy  Regulators 
established by Regulation (EC) No 713/2009 in order to ensure that the particularities of the 
energy sector would be fully taken into account.  

The  information  threshold  will  allow  financial  authorities  to  identify  non-financial 
counterparties  that  have  accumulated  significant  positions  in  OTC  derivatives.  This  is 
necessary,  because  those  counterparties  are  usually  not  subject  to  the  supervision  of  these 
authorities.  In  practice,  when  the  Regulation  foresees  that  when  the  positions  of  a  non-
financial  counterparty  exceed  the  information  threshold,  the  non-financial  counterparty  will 
be  required  to  notify  the  competent  authority  defined  in  the  Regulation  of  this  fact.  In 
addition, that counterparty will automatically become subject to the reporting obligation and 
will be required to provide justification for taking those positions. 

The  clearing  threshold,  on  the  other  hand,  will  be  used  to  establish  whether  a  non-financial 
counterparty will become subject to the clearing obligation. In practice, if the positions of the 
counterparty  will  exceed  that  threshold,  then  the  counterparty  will  become  subject  to  the 
clearing  obligation  for  all  its  contracts.  If  some  of  those  contracts  will  happen  to  be  not 
eligible for CCP clearing, then the non-financial counterparty will be subject to the capital or 
collateral requirements specified in the Regulation (see below). 

Both thresholds will be defined taking into account the systemic relevance of the sum of net 
positions and exposures by counterparty per class of derivatives. However, and importantly, 
and as clarified and confirmed above, in calculating the positions for the clearing threshold, 
derivative contracts should not be taken into account if they have been entered into to cover 
the risks arising from an objectively measurable commercial activity.  

As  not  all  OTC  derivatives  will  be  considered  eligible  for  central  clearing,  there  remains  a 
need  to  improve  arrangements  and  the  safety  of  those  contracts  that  will  continue  to  be 
managed  on  a  so-called  'bilateral'  basis.  The  Regulation  therefore  requires  the  use  of 
electronic means and the existence of risk management procedures with timely, accurate and 
appropriately segregated exchange of collateral, and an appropriate and proportionate holding 
of capital.  

Finally,  financial  counterparties  and  non-financial  counterparty  above  the  clearing  threshold 
must report the details of any derivative contract they have entered into and any modification 
thereof  (including  novation  and  termination)  to  a  registered  trade  repository.  Greater 
transparency of the OTC market is critical for regulators, policymakers, and the marketplace. 
In  the  exceptional  case  that  a  trade  repository  is  not  capable  of  recoding  the  details  of  a 
particular  OTC  derivatives  contract,  the  Regulation  requires  that  this  information  should  be 
provided  directly  to  the  relevant  competent  authority.  The  Commission  will  need  to  be 
empowered to determine the details, type, format and frequency of the reports for the different 
classes of derivatives, following draft technical standards to be developed by ESMA. 

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4.3.3.  Title III (Authorisation and supervision of CCPs) 

To ensure that CCPs established in the European Union are safe, the authorisation of a CCP 
will  be  subject  to  that  CCP  having  access  to  adequate  liquidity.  Such  liquidity  could  result 
from  access  to  central  bank  or  to  creditworthy  and  reliable  commercial  bank  liquidity,  or  a 
combination of both.  

National  competent  authorities  should  retain  the  responsibility  for  authorising  (including 
withdrawal)  and  supervising  CCPs,  as  they  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.  Given  the  systemic  importance  of  CCPs  and  the  cross-border  nature  of  their 
activities, it is important that in the authorisation process a central role is played by ESMA. 
This will be achieved in the following ways: 

–  the adoption of this legislative act in the specific form of a Regulation will give ESMA a 
central role and responsibility for ensuring its common and objective application, as clearly 
specified in the ESMA Regulation; 

–  ESMA will be required to develop a number of draft technical standards in critical areas 

for the correct application of the Regulation; 

–  ESMA will facilitate the adoption of an opinion by the college. 

As  CCPs  are  considered  to  be  systemically  relevant  institutions,  the  relevant  competent 
authorities in the college of competent authorities must define contingency plans to cope with 
emergency  situation.  Furthermore,  the  Commission  in  its  future  initiative  on  crisis 
management and resolution will need to define the specific policy and measures to address a 
crisis situation in a systemically relevant institution. 

As  regards  CCPs  from  third  countries,  ESMA  will  also  have  the  direct  responsibility  of 
recognising  such  CCPs,  if  certain  conditions  are  met.  In  particular,  the  recognition  will 
require that the Commission has ascertained the legal and supervisory framework of that third 
country  as  equivalent  to  the  EU  one,  that  the  CCP  is  authorised  and  subject  to  effective 
supervision in that third country and ESMA has established co-operation arrangements with 
the  third  country  competent  authorities.  A  CCP  of  a  third  country  will  not  be  allowed  to 
perform activities and services in the Union, if these conditions are not met.  

4.3.4.  Title IV (Requirements for CCPs) 

Organisational requirements 

interest  between  owners,  management,  clearing  members  and 

As the Regulation will introduce a mandatory clearing obligation for OTC derivatives, critical 
attention needs to be awarded to the robustness and regulation of CCPs. To begin with, a CCP 
must  have  in  place  robust  governance  arrangements.  These  will  respond  to  any  potential 
conflicts  of 
indirect 
participants.  The  role  of  independent  board  members  is  particularly  relevant.  The  roles  and 
responsibilities  of  the  risk  committee  are  also  clearly  defined  in  the  Regulation:  its  risk 
management  function  should  report  directly  to  the  board  and  not  be  influenced  by  other 
business  lines.  The  Regulation  also  requires  governance  arrangements  to  be  publicly 
disclosed.  In  addition,  a  CCP  should  have  adequate  internal  systems,  operational  and 
administrative procedures, and should be subject to independent audits.  

EN 

9 

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All  of  these  measures  are  considered  more  effective  in  addressing  any potential conflicts of 
interest that may limit the capacity of CCPs to clear, than any other form of regulation which 
may have undesirable consequence on market structures (e.g. limitation of ownership, which 
would need to extend also to so-called vertical structures in which exchanges own a CCP). 

Prudential requirements 

As  the  CCP  will  be  a  counterparty  to  every  position,  it  bears  the  risk  that  one  of  its 
counterparties  might  fail.  Similarly,  any  counterparty  of  a  CCP  bears  the  risk  that  the  CCP 
itself might fail. The Regulation therefore provides that a CCP must mitigate its counterparty 
credit  risk  exposure  through  a  number  of  reinforcing  mechanisms.  These  include  stringent, 
but non-discriminatory participation requirements, financial resources, and other guarantees. 

By  virtue  of  its  central  role,  a  CCP  is  a  critical  component  of  the  market  it  serves. 
Consequently,  the  failure  of  a  CCP  would  in  almost  all  cases  become  a  potential  systemic 
event for the financial system. In view of their systemically important role and in view of the 
proposed legislative requirement to clear all 'standardised' OTC derivatives through CCPs, the 
need to subject them to strict prudential regulation at EU-level cannot be over-emphasized. As 
the present national laws regulating CCPs differ between Member States, the resulting unlevel 
playing field also makes the cross-border provision of CCP services potentially less safe and 
more costly than would be desirable and represents a barrier to the integration of the European 
financial market. 

Outsourcing of functions by a CCP will only be allowed, if it does not impact on the proper 
operation  of  the  CCP  and  on  its  ability  to  manage  risks,  including  those  arising  from  the 
outsourced  functions.  Thus,  CCPs  must  always  monitor  and  have  full  control  of  the 
outsourced functions and continuously manage the risks they face. In practical terms, no risk 
management functions will be allowed to be outsourced. 

A minimum quantum of capital must be required for authorisation to exercise the activities of 
a CCP. A CCP’s own capital is also its last line of defence in the event of the default of one or 
more  members,  after  the  margins  collected  from  the  defaulting  member(s),  the  default  fund 
and  any  other  financial  resources  have  been  exhausted.  If  a  CCP  decides  to  use  part  of  its 
capital as an additional financial resource to be used for risk management purposes, then this 
portion  must  be  in  addition  to  the  capital  needed  to  perform  the  services  and  activities  of  a 
CCP on an on-going basis. 

The Regulation will require a CCP to have a mutualised default fund to which members of the 
CCP will have to contribute. A default fund enables loss-mutualisation and thus represents an 
additional line of defence that a CCP can use in case of the insolvency of one or more of its 
members.  

The Regulation also introduces important rules on segregation and portability of positions and 
corresponding  collateral.  These  are  critical  to  effectively  reduce  counterparty  credit  risk 
through  the  use  of  CCPs,  to  achieve  a  level  playing  field  among  European  CCPs  and  to 
protect  the  legitimate  interests  of  clients  of  clearing  members.  This  responds  to  a  call  by 
clearing  members  and  their  clients  for  greater  harmonisation  and  protection  in  this  field.  It 
also responds to the issues highlighted by Lehman's demise. 

EN 

10 

   EN 

4.3.5.  Title V (Interoperability) 

Interoperability  is  an  essential  tool  to  achieve  an  effective  integration  of  the  post-trading 
market  in  Europe.  However,  interoperability  may  expose  CCPs  to  additional  risks.  For  this 
reason  regulatory  approval  is  required  before  entering  into  an  interoperable  arrangement. 
CCPs  should  carefully  consider  and  manage  the  extra  risks  that  interoperability  entails  and 
satisfy the competent authorities about the soundness of the systems and procedures adopted. 
In view of the complexity of derivatives markets and the early stage of development of CCP 
clearing for OTC derivatives, it is not appropriate to extend the provisions on interoperability 
to instruments other than cash securities at this point in time. However, this exclusion should 
not limit the possibility of CCPs to enter into such arrangements in a safe manner, subject to 
the conditions provided in the Regulation. 

4.3.6.  Title VI (Registration and surveillance of trade repositories) 

As  mentioned  above  (section  4.3.2)  the  Regulation  provides  for  a  reporting  requirement  of 
OTC derivative transactions to increase the transparency of this market. The information must 
be reported to trade repositories. The latter will therefore hold regulatory information which 
will be relevant for a number of regulators. In view of the central role of trade repositories in 
the  collection  of  regulatory  information,  the  Regulation  gives  ESMA  the  powers  to  register 
trade  repositories,  withdraw  the  registration  and  to  perform  the  surveillance  of  trade 
repositories.  Granting  surveillance  powers  to  authorities  in  the  Member  State  where  a  trade 
repository is established would create an unbalanced situation between competent authorities 
of  the  different  Member  States.  Furthermore,  as  there  are  no  fiscal  responsibilities 
implications  connected  to  the  surveillance  of  trade  repositories,  a  national  supervisory 
approach  is  not  necessary.  ESMA's  role  will  also  ensure  an  unfettered  access  to  all  the 
relevant  European  authorities  and  a  unique  counterparty  representing  Europe  to  deal  with 
competent authorities of third countries trade repositories. 

4.3.7.  Title VII (Requirements for trade repositories) 

The Regulation also contains provisions for trade repositories to guarantee their compliance 
with  a  set  of  standards.  These  are  designed  to  ensure  that  the  information  that  trade 
repositories maintain for regulatory purposes is reliable, secured and protected. In particular, 
trade  repositories  will  be  subject  to  organisational  and  operational  requirements  and  ensure 
appropriate safeguarding and transparency of data. 

In order to be registered, trade repositories must be established in the EU. However, a trade 
repository established in a third country can be recognised by ESMA if it meets a number of 
requirements designed to establish that such trade repository is subject to equivalent rules and 
appropriate  surveillance  in  that  third  country.  In  order  to  ensure  that  there  are  no  legal 
obstacles  in  place  that  would  prevent  an  effective  mutual  exchange  of  information  and 
unfettered  access  to  data  maintained  in  a  trade  repository  located  in  a  third  country,  the 
Regulation  foresees  the  need  to  conclude  an  international  agreement  to  that  effect.  The 
Regulation stipulates that if such an agreement is not in place a trade repository established in 
that third country would not be recognised by ESMA. 

5. 

FINAL PROVISIONS 

The  Commission  should  be  empowered  to  adopt  delegated  acts  in  accordance  with  Article 
290  of  the  Treaty  on  the  Functioning  of  the  European  Union  in  respect  of  the  details  to  be 

EN 

11 

   EN 

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. ESMA should draft regulatory technical standards for these delegated acts 
and carry out appropriate impact assessments. 

The  Commission  should  be  empowered  to  determine  the  format  of  reports,  record  keeping 
and the format for the registration application of a trade repository. According to Article 291 
TFEU, rules and general principles concerning mechanisms for the control by Member States 
of  the  Commission's  exercise  of  implementing  powers  are  to  be  laid  down  in  advance  by  a 
Regulation  adopted  in  accordance  with  the  ordinary  legislative  procedure.  Pending  the 
adoption  of  that  new  Regulation,  Council  Decision  1999/468/EC  of  28  June  1999  laying 
down the procedures for the exercise of implementing powers conferred on the Commission 
continues to apply, with the exception of the regulatory procedure with scrutiny, which is not 
applicable. 

6. 

BUDGETARY IMPLICATION 

The proposal has no implication for the Union budget. 

EN 

12 

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2010/0250 (COD) 

Proposal for a 

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 Committee17,  

Having regard to the opinion of the European Central Bank, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

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 Europe, including the 
creation  of  a  European  System  of  Financial  Supervisors,  comprising  three  European 
Supervisory  Authorities,  one  for  the  securities  sector,  one  for  the  insurance  and  occupational 
pensions sector and one for the banking sector, and the creation of a European Systemic Risk 
Board.  

The Commission Communication of 4 March 2009, "Driving European Recovery"18, proposed 
to strengthen the Union's regulatory framework for financial services. In its Communication of 
3 July 200919, the Commission assessed the role of derivatives in the financial crisis, and in its 
Communication of 20 October 200920, the Commission outlined the actions it intends to take to 
reduce the risks associated with derivatives. 

17 
18 
19 
20 

OJ C , , p. . 
"Driving European Recovery" - COM(2009) 114. 
"Ensuring efficient, safe and sound derivatives markets" - COM(2009) 332. 
"Ensuring efficient, safe and sound derivatives markets: Future policy actions" - COM(2009) 563. 

EN 

13 

   EN 

                                                 
(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

On 23  September 2009, the  Commission adopted proposals for three Regulations establishing 
the  European  System  of  Financial  Supervisors,  including  the  creation  of  three  European 
Supervisory Authorities to contribute to a consistent application of Union legislation and to the 
establishment  of  high  quality  common  regulatory  and  supervisory  standards  and  practices. 
These  are  the  European  Banking  Authority  (EBA)  established  by  Regulation  …/…EU…,  the 
European Securities and Markets Authority (ESMA) established by Regulation …/…EU…, and 
the  European  Insurance  and  Occupational  Pensions  Authority  (EIOPA)  established  by 
Regulation …/…EU…. 

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. 

At the 26 September 2009 summit in Pittsburgh, G20 Leaders agreed that all standardised OTC 
derivative contracts should be cleared through central counterparties (CCP) by end-2012 at the 
latest and that OTC derivative contracts should be reported to trade repositories. In June 2010, 
G20  Leaders  in  Toronto  reaffirmed  their  commitment  and  also  committed  to  accelerate  the 
implementation of strong measures to improve transparency and regulatory oversight of over-
the-counter  derivatives  in  an  internationally  consistent  and  non-discriminatory  way.  The 
Commission will endeavour to ensure that these commitments are implemented in a similar way 
by our international partners. 

The  European  Council,  in  its  Conclusions  of  2  December  2009,  agreed  with  the  need  to 
substantially  improve  the  mitigation  of  counterparty  credit  risk  and  with  the  importance  of 
improving  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.  

The  European  Securities  and  Markets  Authority  (ESMA)  acts  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 
central counterparties and trade repositories. 

Uniform rules are required for derivative contracts set out in Annex I, Section C, numbers (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  amending  Council  Directives  85/611/EEC  and 93/6/EEC 
and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council 
Directive 93/22/EEC21 that are traded over-the-counter.  

21 

OJ L 145, 30.4.2004, p. 1. 

EN 

14 

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(9) 

(10) 

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

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 whether a class of derivatives meets the eligibility 
criteria and from when the clearing obligation take effect. 

(13)  For  an  OTC  derivative  contract  to  be  cleared,  both  parties  to  that  contract  must  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. 

(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. 

(15)  Rules  on  clearing  and  reporting  obligations  and  rules  on  risk  mitigation  techniques  for  OTC 
derivative  contracts  not  cleared  by  a  CCP  should  apply  to  financial  counterparties,  namely 
investment firms as set out in Directive 2004/39/EC, credit institutions as defined in 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 (recast)22, insurance undertakings as 
defined  in  Directive  73/239/EEC  [NB:  to  be  repealed  by  Solvency  II  in  2012],  assurance 
undertakings as defined in Directive 2002/83/EC of the European Parliament and of the Council 
of  5  November  2002  concerning  life  assurance23,  reinsurance  undertakings  as  defined  in 
Directive  2005/68/EC,  undertakings  for  collective  investments  in  transferable  securities 
(UCITS) as defined in 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)24,  institutions  for 
occupational  retirement  provision  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  provision25  and  alternative  investment  funds  managers  as  defined  in 
Directive 2010/.../EU. 

22 
23 
24 
25 

OJ L 177, 30.6.2006, p. 1. 
OJ L 345, 19.12.2002, p. 1. 
OJ L 302, 17.11.2009, p. 32. 
OJ L 235, 23.9.2003, p. 10. 

EN 

15 

   EN 

                                                 
(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. When establishing the threshold for the clearing obligation, ESMA should consult 
all relevant authorities, as for example regulators responsible for commodity markets, in order 
to ensure that the particularities of these sectors are fully taken into account. Moreover, by 31 
December  2013,  the  Commission  shall  assess  the  systemic  importance  of  the  transactions  of 
non-financial firms in OTC derivatives in different sectors, including the energy sector. 

(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  of  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 institutions26 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. 

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

(20)  The introduction of a clearing obligation along with a process to establish which CCPs can be 
used  for  the  purpose  of  this  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  accept  to  clear  transactions  executed  in 
different  venues,  to  the  extent  that  those  venues  comply  with  the  operational  and  technical 
requirements  established  by  the  CCP.  Generally,  the  Commission  should  continue  to  closely 
monitor 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) 

(22) 

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. 

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 ESCB. 

(23) 

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

26 

OJ L 177, 30.6.2006, p. 1. 

EN 

16 

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(24)  The  obligation  to  report  any  modification  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 that 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.  

(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  stringent  organisational,  conduct  of  business  and  prudential  requirements  established  by 
this Regulation. They should apply to the clearing of all financial instruments CCPs deal with, 
in order to ensure a uniform application. 

(28) 

It  would  therefore  be  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  national  competent  authorities 
should retain the responsibility for all aspects of the authorisation and the supervision of CCPs, 
including  the  verification  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 systems27, 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 authorization 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 Members States and they will be the first to 
be  impacted  by  the  CCP's  default,  it  is  imperative  that  all  relevant  competent  authorities  are 
involved  in  the  authorization  and  supervision  process  and  that  appropriate  cooperation 
mechanisms, including colleges, are put in place. This will avoid divergent national measures or 
practices and obstacles to the internal market. ESMA should be a participant in every college in 
order to ensure the consistent and correct application of this Regulation. 

(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.  Due  to 

27 

OJ L 166, 11.6.1998, p. 45. 

EN 

17 

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increasing  cross-border  activity,  competent  authorities  should  provide  each  other  with  the 
relevant information for the exercise of their functions so as to ensure the effective enforcement 
of this Regulation, including in situations where infringements or suspected infringements may 
be of concern  to authorities  in two  or more Member States.  For the exchange  of  information, 
strict professional secrecy is needed. It is essential, due to the wide impact of OTC derivative 
contracts,  that  other  relevant  authorities,  such  as  tax  authorities  and  energy  regulators,  have 
access to information necessary to the exercise of their functions. 

(32) 

In  view  of  the  global  nature  of  financial  markets,  ESMA  should  be  directly  responsible  for 
recognising  CCPs  established  in  third  countries  and  thus  allowing  them  to  provide  clearing 
services  within  the  Union,  provided  that  the  Commission  has  recognised  the  legal  and 
supervisory  framework  of  that  third  country  as  equivalent  to  the  Union  framework  and  that 
certain  other  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.  

(33)  CCPs  should  have  robust  governance  arrangements,  senior  management  of  good  repute  and 
independent  members  on  its  board, irrespective of its ownership structure. 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 
they may be impacted by decisions taken by the CCP. (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.  

(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. 

(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, maintain a default fund and other financial resources to cover potential losses. 

(38)  Margin  calls  and  haircuts  on  collateral  may  have  procyclical  effects.  CCPs  and  competent 
authorities 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 

EN 

18 

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sources should include, but not be limited to, 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. 

(41)  The  "European  Code  of  Conduct  for  Clearing  and  Settlement"  of  7  November  200628 
established a voluntary framework for establishing 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  are  important  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 restrict the scope of interoperability arrangements to cash securities. 
However, by 30 September 2014, ESMA should submit a report to the Commission on whether 
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.  In  view  of  the  fact  that  surveillance  of  trade  repositories  does  not  have  any 
fiscal implications and that many authorities across Member States will need access to the data 
maintained  by  trade  repositories,  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  and  trade 

repositories is necessary to enable market participants to make an informed choice.  

(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  and  that  trade  repositories  and  other  persons  submit  to  an  investigation. 
Moreover,  for  deterrence  purposes  and  to  compel  trade  repositories  to  comply  with  the 
Regulation, the Commission should also be able to impose fines, following a request of ESMA, 
where  intentionally  or  negligently,  specific  provisions  of  the  Regulation  have  been  breached. 
The fine shall 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 concerned.  

28 

http://ec.europa.eu/internal_market/financial-markets/docs/code/code_en.pdf 

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19 

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(47) 

(48) 

(49) 

In  order  to  effectively  survey  trade  repositories,  ESMA  should  have  the  right  to  conduct 
investigations and on-site-inspections.  

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 data29. 

It  is  important  to  ensure  international  convergence  of  requirements  for  central  counterparties 
and  trade  repositories.  This  Regulation  follows  the  recommendations  developed  by  CPSS-
IOSCO30 and ESCB-CESR31 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 Commission should be empowered to adopt delegated acts in accordance with Article 290 
of  the  Treaty  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  European  Supervisory  Authorities  (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  closely 
with the other two European Supervisory Authorities. 

(51)  According  to  Article  291  TFEU,  rules  and  general  principles  concerning  mechanisms  for  the 
control by Member States of the Commission's exercise of implementing powers are to be laid 
down in advance by a Regulation adopted in accordance with the ordinary legislative procedure. 
Pending the adoption of that new Regulation, Council Decision 1999/468/EC of 28 June 1999 
laying  down  the  procedures  for  the  exercise  of  implementing  powers  conferred  on  the 
Commission continues to apply, with the exception of the regulatory procedure with scrutiny, 
which is not applicable.  

(52)  Since the objectives of this Regulation, namely to lay down uniform requirements for over-the-
counter  (OTC)  derivative  contracts  and  to  also  lay  down  uniform  requirements  for  the 
performance of activities of central counterparties 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 

29 
30 

31 

OJ L 281, 23..1.1995, p. 31. 
Committee on Payment and Settlement Systems (CPSS) of the central banks of the Group of Ten countries and the 
Technical Committee of the International Organization of Securities Commissions. 
European System of Central Banks and the Committee of European Securities Regulators. 

EN 

20 

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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. 

HAVE ADOPTED THIS REGULATION: 

Title I 
Subject matter, scope and definitions 

Article 1 
Subject matter and scope 

1. 

2. 

3. 

4. 

This  Regulation  lays  down  uniform  requirements  for  derivative  contracts  set  out  in  Annex  I 
Section C  numbers  (4) to  (10)  of Directive 2004/39/EC that are traded  over-the-counter and 
lays down uniform requirements for the performance of activities of central counterparties and 
trade repositories.  

This  Regulation  shall  apply  to  central  counterparties,  financial  counterparties  and  to  trade 
repositories. It shall apply to non-financial counterparties where so provided. 

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

This Regulation shall not apply to: 

(a) 

the  Members  of  the  European  System  of  Central  Banks  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. 

Article 2 
Definitions 

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

(1) 

'central  counterparty  (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  OTC 
derivatives; 

EN 

21 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

(10) 

(11) 

(12) 

(13) 

'clearing'  means  the  process  of  establishing settlement positions, including  the calculation of 
net positions, and the process of checking that financial instruments, cash or both are available 
to secure the exposures arising from a transaction; 

'class  of  derivatives'  means  a  number  of  OTC  derivative  contracts  that  share  common, 
essential characteristics;  

'over the counter (OTC) derivatives' means derivative contracts whose execution does not take 
place on a regulated market as defined by Article 4 (1) point 14 of Directive 2004/39/EC;  

'financial  counterparty'  means  investment  firms  as  set  out  in  Directive  2004/39/EC,  credit 
institutions as defined in Directive 2006/48/EC, insurance undertakings as defined in Directive 
73/239/EEC,  assurance  undertakings  as  defined  in  Directive  2002/83/EC,  reinsurance 
undertakings  as  defined  in  Directive  2005/68/EC,  undertakings  for  collective  investments  in 
transferable  securities  (UCITS)  as  defined  in  Directive  2009/65/EC,  institutions  for 
occupational  retirement  provision  as  defined  in  Directive  2003/41/EC  and  alternative 
investment funds managers as defined in Directive 2010/.../EU; 

'non-financial  counterparty'  means  an  undertaking  established  in  the  Union  other  than  the 
entities referred to in point (6); 

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

'interoperability arrangement' means an arrangement between two or more CCPs that involves 
a cross-system execution of transactions; 

'competent  authority'  means  the  authority  designated  by  each  Member  State  in  accordance 
with Article 18; 

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

'client'  means  an  undertaking  with  a  contractual  relationship  with  a  clearing  member  which 
enables that undertaking to clear its transactions with that CCP;  

‘qualifying holding’ means any direct or indirect holding in a CCP or trade repository which 
represents 10% or more of the capital or of the voting rights, as set out in Articles 9 and 10 of 
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  on  a  regulated  market32,  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 
Council Directive 83/349/EEC33; 

32 
33 

OJ L 390, 31.12.2004, p. 38. 
OJ L 193, 18.7.1983, p. 1. 

EN 

22 

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(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) 

(b) 

participation which means the ownership, direct or by way of control, of 20% or more of 
the voting rights or capital of an undertaking, 

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,  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) 

(19) 

(20) 

(21) 

'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 
institutions34  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; 

'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 
companies35 and profits and losses brought forward as a result of the application of the final 
profit or loss; 

'the board' means the administrative or supervisory board, or both, in accordance with national 
company law; 

'independent member of the board' means a member of the board that has no 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. 

34 
35 

OJ L 372, 31.12.1986, p. 1. 
OJ L 222, 14.8.1978, p. 11. 

EN 

23 

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Title II 
Clearing, reporting and risk mitigation of OTC Derivatives 

Article 3 
Clearing obligation 

1. 

2. 

1. 

2. 

A financial counterparty shall clear all OTC derivative contracts which are considered eligible 
pursuant  to  Article  4  and  are  concluded  with  other  financial  counterparties  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  Article  7(2)  which  enter  into  eligible  OTC  derivative  contracts 
with third country entities. 

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 a client.  

Article 4 
Eligibility for the clearing obligation 

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.  

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 date from which the clearing obligation takes effect. 

3. 

ESMA shall base its decision on the following criteria:  

(a) 

reduction of systemic risk in the financial system; 

(b) 

the liquidity of contracts; 

(c) 

availability of pricing information;  

(d) 

ability of the CCP to handle the volume of contracts; 

(e) 

level of client protection provided by the CCP. 

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

EN 

24 

   EN 

4. 

5. 

6. 

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. 

ESMA shall, on its own initiative and in consultation with the European Systemic Risk Board 
(ESRB), identify and notify to the Commission the classes of derivatives contracts that should 
be included in its public register, but for which no CCP has yet received authorisation.  

Powers are delegated to the Commission to adopt 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 minimum correctly and unequivocally identify the class of 
derivatives subject to the clearing obligation. 

The  draft  regulatory  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

ESMA shall submit drafts for those regulatory standards to the Commission by 30 June 2012.  

Article 5 
Access to a CCP 

A CCP that  has  been authorised to  clear  eligible OTC derivative contracts shall  accept clearing such 
contracts on a non-discriminatory basis, regardless of the venue of execution. 

Article 6 
Reporting obligation 

1. 

2. 

Financial counterparties shall report to a trade repository registered in accordance with Article 
51 the details of any OTC derivative contract they have entered into and any modification or 
termination.  The  details  shall  be  reported  no  later  than  the  working  day  following  the 
execution, clearing, or modification of the contract. 

Other entities may report any such modification or termination as referred to in paragraph 1, 
on  behalf  of  the  original  counterparties,  to  the  extent  that  all  the  details  of  the  contract  are 
reported without duplication. 

Where  a  trade  repository  is  not  able  to  record  the  details  of  an  OTC  derivative  contract, 
financial  counterparties  shall  report  the  details  of  their  positions  in  those  contracts  to  the 
competent authority designated in accordance with Article 48 of Directive 2004/39/EC.  

EN 

25 

   EN 

The  details  to  be  reported  to  the  competent  authority  shall  be  at  least  those  that  would  be 
reported to the trade repository. 

3. 

A counterparty which is subject to the reporting obligation may delegate the reporting of the 
details of the OTC derivative contract to the other counterparty.  

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 lie with the reporting entity or its directors or 
employees. 

4. 

Powers  are  delegated  to  the  Commission  to  determine  the  details  and  type  of  the  reports 
referred to in paragraphs 1 and 2 for the different classes of derivatives. 

Those reports shall contain at least: 

(a) 

(b) 

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

the  main  characteristics  of  the  contract,  including  the  type,  underlying,  maturity  and 
notional value are reported. 

The draft regulatory technical standards referred to in the first subparagraph shall be adopted 
in accordance with [Articles 7 to 7d] of Regulation …/… [ESMA Regulation]. 

ESMA shall develop draft regulatory technical standards for submission to the Commission by 
30 June 2012. 

In  order  to  ensure  uniform  conditions  of  application  of  paragraphs  1  and  2,  powers  are 
conferred upon the Commission to determine format and frequency of the reports referred to 
in paragraphs 1 and 2 for the different classes of derivatives. The draft implementing standards 
referred  to  in  the  first  subparagraph  shall  be  adopted  in  accordance  with  [Article  7e]  of 
Regulation …/… [ESMA Regulation]. 

ESMA  shall  develop  draft  implementing  technical  standards  for  submission  to  the 
Commission by 30 June 2012. 

Article 7 
Non-financial counterparties 

Where  a  non-financial  counterparty  takes  positions  in  OTC  derivative  contracts  that  exceed 
the  information  threshold  to  be  determined  pursuant  to  paragraph  3(a),  it  shall  notify  the 
competent  authority  designated  in  accordance  with  Article  48  of  Directive  2004/39/EC 
thereof, providing justification for taking those positions. 

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

5. 

1. 

EN 

26 

   EN 

2. 

Where a non-financial counterparty takes positions in OTC derivative contracts exceeding the 
clearing  threshold  to  be  determined  pursuant  to  paragraph  3(b),  it  shall  be  subject  to  the 
clearing obligation set out in Article 3 with regard to all its eligible OTC derivative contracts.  

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. 

3. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying: 

4. 

5. 

1. 

(a) 

the information threshold;  

(b) 

the clearing threshold. 

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.  

The regulatory standards referred to in the first subparagraph shall be adopted in accordance 
with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

ESMA, in consultation with the European Systemic Risk Board ("ESRB") and other relevant 
authorities,  shall  submit  drafts  for  those  regulatory  standards  to  the  Commission  by  30  June 
2012 at the latest. 

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 
commercial activity of that counterparty shall not be taken into account.  

The  Commission,  in  consultation  with  ESMA,  ESRB  and  other  relevant  authorities,  shall 
periodically  review  the  thresholds  established  in  paragraph  3  and  amend  them,  where 
necessary. 

Article 8 
Risk mitigation techniques for OTC derivative contracts not cleared by a CCP 

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  that  appropriate 
procedures  and  arrangements  are  in  place  to  measure,  monitor  and  mitigate  operational  and 
credit risk, including at least:  

(a)  where  possible,  electronic  means  ensuring  the  timely  confirmation  of  the  terms  of  the 

OTC derivative contract;  

(b) 

robust, resilient and auditable processes 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  the  appropriate  and  proportionate  holding 
of capital. 

EN 

27 

   EN 

2. 

3. 

1. 

2. 

3. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
maximum  time  lag  between  the  conclusion  of  an  OTC  derivative  contract  and  the 
confirmation referred to in paragraph 1(a).  

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

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

Powers are delegated to the Commission to adopt 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.  

Depending on the legal nature of the counterparty, the regulatory technical standards referred 
to  in  the  first  subparagraph  shall  be  adopted  in  accordance  with  either  Articles  [7  to  7d]  of 
Regulation EU…/…[ EBA], Articles [7 to 7d] of Regulation EU…/…[ESMA] or Articles [7 
to 7d] of Regulation EU…/…[ EIOPA]. 

EBA, ESMA and EIOPA shall submit, jointly, a common draft to the Commission for those 
regulatory technical standards by 30 June 2012.  

Article 9 
Penalties 

Member States 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. 

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.  

By 30 June 2012 at the latest, 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. 

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. 

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Title III 
Authorisation and supervision of CCPs 

Chapter 1 
Conditions and Procedures for the Authorisation of a CCP  

1. 

2. 

3. 

4. 

5. 

1. 

Article 10 
Authorisation of a CCP 

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. 

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

The  authorisation  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. 

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. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
criteria for adequate liquidity referred to in paragraph 1.  

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

EBA shall, in consultation with ESMA, submit a draft to the Commission for those regulatory 
technical standards by 30 June 2012.  

Article 11 
Extension of activities and services 

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.  

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2. 

1. 

2. 

3. 

1. 

2. 

3. 

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

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  

A CCP shall have a permanent, available and separate initial capital of at least EUR 5 million 
to be authorised pursuant to Article 10.  

Capital, together with retained earnings and reserves of a CCP, 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. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
capital, retained earnings and reserves of a CCP referred to in paragraph 2.  

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

ESMA shall, in consultation with EBA, submit a draft to the Commission for those regulatory 
technical standards by 30 June 2012.  

Article 13 
Procedure for granting and refusing authorisation  

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, the requirements 
adopted pursuant to Directive 98/26/EC, and following the joint positive opinion of the college 
referred to in Article 15 and the opinion of ESMA. 

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. 

Within six 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 
Colleges 

1. 

The  competent  authority  of  the Member State of establishment  of a CCP shall establish and 
chair a college to facilitate the exercise of the tasks referred to in Articles 10, 11, 46 and 48.  

The college shall consist of: 

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(a)  ESMA ; 

(b) 

the competent authority of the Member State of establishment of the CCP; 

(c) 

(d) 

(e) 

(f) 

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; 

the  competent  authorities  responsible  for  the  supervision  of  regulated  markets,  or 
multilateral trading facilities, served by the CCP or both; 

the  competent  authorities  supervising  CCPs  with  whom  interoperability  arrangements 
have been established; 

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.  

2. 

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

(a) 

the preparation of the joint opinion referred to in Article 15; 

(b) 

the exchange of information, including requests for information pursuant to Article 21; 

(c) 

agreement on the voluntary entrustment of tasks among its members; 

(d) 

(e) 

the determination of supervisory examination programmes based on a risk assessment of 
the CCP; 

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 
between all its members.  

That agreement shall determine the practical arrangements for the functioning of the college 
and  may  determine  tasks  to  be  entrusted  to  the  competent  authority  of  the  Member  State  of 
establishment of a CCP or another member of the college. 

Article 15 
Joint opinion 

1. 

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 the college.  

The college shall reach a joint opinion on that report within two months of receiving it.  

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2. 

ESMA  shall  facilitate  the  adoption  of  a  joint  opinion  in  accordance  with  its  settlement  of 
disagreement powers under Article 11 of Regulation …/… [ESMA Regulation] and its general 
coordination function under Article 16 of the same Regulation. It shall have no voting rights 
on joint opinions of the college. 

Article 16 
Withdrawal of authorisation 

1. 

The  competent  authority  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 systematically infringed the requirements set out in this Regulation; 

2. 

3. 

ESMA  and  any  other  member  of  the  college  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.  

The competent authority may limit the withdrawal to a particular service, activity, or financial 
instrument. 

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. 

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Chapter 2 
Supervision and oversight of CCPs 

Article 18  
Competent authorities 

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.  

Where  a  Member  State  designates  more  than  one  competent  authority,  it  shall  clearly 
determine the respective roles and shall designate a single authority to be responsible for co-
ordinating  co-operation  and  the  exchange  of  information  with  the  Commission,  ESMA  and 
other Member States’ competent authorities in accordance with Articles 19 to 22. 

Each  Member  State  shall  ensure  that  the  competent  authorities  have  the  supervisory  and 
investigatory powers necessary for the exercise of their functions. 

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.  

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

Chapter 3 
Cooperation  

Article 19 
Cooperation between authorities 

Competent authorities shall cooperate closely with each other and with ESMA.  

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. 

1. 

2. 

3. 

4. 

1. 

2. 

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Article 20 
Professional secrecy  

1. 

2. 

3. 

The obligation of professional secrecy shall apply to all persons working or who 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 the other provisions of this Regulation. 

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. 

Without prejudice to cases covered by criminal 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 other authority, body or person communicating information 
consents thereto, the authority receiving the information may use it for other 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 and 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,  undertakings  for  collective  investment  in  transferable  securities("UCITS"), 
alternative  investment  fund  managers  ("AIFM"),  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. 

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. 

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2. 

3. 

4. 

1. 

2. 

3. 

4. 

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. 

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. 

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,  the  college  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 

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. 

ESMA shall recognise a CCP from a third country, where the following conditions are met:  

(a) 

the Commission has adopted a Decision in accordance with paragraph 3; 

(b) 

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

(c) 

co-operation arrangements have been established in paragraph 4. 

The Commission may adopt a Decision in accordance with the procedure referred to in Article 
69(2), determining that the legal and supervisory arrangements of a third country ensure that 
CCPs  authorised  in  that  third  country  comply  with  legally  binding  requirements  which  are 
equivalent to the requirements resulting from this Regulation and that these CCPs are subject 
to effective supervision and enforcement in that third country on an ongoing basis. 

ESMA  shall  establish  cooperation  arrangements  with  the  relevant  competent  authorities  of 
third countries whose legal and supervisory frameworks have been recognised as equivalent to 
this Regulation in accordance with paragraph 3. Such arrangements shall specify at least: 

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(a) 

the  mechanism  for  the  exchange  of  information  between  ESMA  and  the  competent 
authorities of third countries concerned;  

(b) 

the procedures concerning the coordination of supervisory activities. 

Title IV 
Requirements for CCPs 

Chapter 1 
Organisational Requirements 

Article 24 
General provisions 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

A  CCP  shall  have  robust  governance  arrangements,  which  include  a  clear  organisational 
structure  with  well-defined,  transparent  and  consistent  lines  of  responsibility,  effective 
processes to identify, manage, monitor and report the risks to which it is or might be exposed, 
and  adequate  internal  control  mechanisms,  including  sound  administrative  and  accounting 
procedures.  

A  CCP  shall  adopt  policies  and  procedures  which  are  sufficiently  effective  so  as  to  ensure 
compliance with this Regulation, including compliance of its managers and employees with all 
the provisions of this Regulation. 

A  CCP  shall  maintain  and  operate  an  organisational  structure  that  ensures  continuity  and 
orderly  functioning  in  the  performance  of  its  services  and  activities.  It  shall  employ 
appropriate and proportionate systems, resources and procedures. 

A CCP shall maintain a clear separation between the reporting lines for risk management and 
those for the other operations of the CCP.  

A CCP shall adopt, implement and maintain a remuneration policy which promotes sound and 
effective risk management and which does not create incentives to relax risk standards. 

A CCP shall maintain information technology systems adequate to deal with the complexity, 
variety and type of services and activities performed so as to ensure high standards of security 
and the integrity and confidentiality of the information maintained. 

A CCP shall make its governance arrangements and the rules governing the CCP available to 
the public. 

The CCP shall be subject to frequent and independent audits. The results of these audits shall 
be communicated to the board and made available to the competent authority. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
minimum  content  of  the  rules  and  governance  arrangements  referred  to  in  paragraphs  (1)  to 
(8). 

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The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

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

Article 25 
Senior Management and the Board  

1. 

2. 

The senior management shall be of sufficiently good repute and experience so as to ensure the 
sound and prudent management of the CCP.  

A CCP shall have a board of which at least one third, but no less than two, of its members are 
independent.  The  compensation  of  the  independent  and  other  non-executive  members  of  the 
board shall not be linked to the business performance of the CCP.  

The members of the board, including its independent members, shall be of sufficiently good 
repute  and  have  sufficient  expertise  in  financial  services,  risk  management  and  clearing 
services. 

3. 

A CCP shall clearly determine the roles and responsibilities of the board and shall make the 
minutes of the board meetings available to the competent authority.  

Article 26 
Risk committee  

1. 

2. 

3. 

4. 

A  CCP  shall  establish  a  risk  committee,  which  shall  be  composed  of  representatives  of  its 
clearing  members  and  independent  members  of  the  board.  The  risk  committee  may  invite 
employees of the CCP to attend risk committee meetings in a non-voting capacity. The advice 
of  the  risk  committee  shall  be independent  from  any  direct  influence  by  the  management  of 
the CCP. 

A  CCP  shall  clearly  determine  the  mandate,  the  governance  arrangements  to  ensure  its 
independence, the operational procedures, the admission criteria and the election mechanism 
for  risk  committee  members.  The  governance  arrangements  shall  be  publicly  available  and 
shall, at least, determine that the risk committee is chaired by an independent member of the 
board, reports directly to the board and holds regular meetings. 

The  risk  committee  shall  advise  the  board  on  any  arrangements  that  may  impact  the  risk 
management of the CCP, such as, but not limited to, a significant change in its risk model, the 
default procedures, the criteria for accepting clearing members or the clearing of new classes 
of instruments. The advice of the risk committee is not required for the daily operations of the 
CCP or in emergency situations. 

Without prejudice to the right of competent authorities to be duly informed, the members of 
the  risk  committee  shall  be  bound  by  confidentiality.  Where  the  chairman  of  the  risk 
committee  determines  that  a  member  has  an  actual  or  potential  conflict  of  interest  on  a 
particular matter, that member shall not be allowed to vote on that matter. 

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5. 

6. 

1. 

2. 

3. 

4. 

5. 

A  CCP  shall  promptly  inform  the  competent  authority  of  any  decision  in  which  the  board 
decides not to follow the advice of the risk committee. 

A CCP shall allow the clients of clearing members to be members of the risk committee or, 
alternatively,  it  shall  establish  appropriate  consultation  mechanisms  that  ensure  that  the 
interests of the clients of clearing members are adequately represented.  

Article 27 
Record keeping 

A  CCP  shall  maintain,  for  a  period  of  at  least  ten  years,  all  the  records  on  the  services  and 
activity provided so as to enable the competent authority to monitor the compliance with the 
requirements under this Regulation. 

A CCP shall maintain, for a period of at least ten years following the termination of a contract, 
all information on all contracts it has processed. That information shall at a minimum enable 
the identification of the original terms of a transaction before clearing by that CCP. 

A  CCP  shall  make  the  records  and  information  referred  to  in  paragraphs  1  and  2  and  all 
information  on  the  positions  of  cleared  contracts,  irrespective  of  the  venue  where  the 
transactions was executed, available upon request to the competent authority and to ESMA.  

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
details of the records and information to be retained as referred to in paragraphs 1 and 2. 

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

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

In  order  to  ensure  uniform  conditions  of  application  of  paragraph  1  and  2,  powers  are 
conferred  to  the  Commission  to  determine  the  format  of  the  records  and  information  to  be 
retained.  

The implementing technical standards referred to in the first subparagraph shall be adopted in 
accordance with [Article 7e] of Regulation …/… [ESMA Regulation]. 

ESMA  shall  submit  drafts  on  those  implementing  technical  standards to  the  Commission  by 
30 June 2012. 

Article 28 
Shareholders and members with qualifying holdings 

1. 

The competent authority shall not authorise a CCP until it has been informed of the identities 
of the shareholders or members, whether direct or indirect, natural or legal persons, that have 
qualifying holdings and the amounts of those holdings. 

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2. 

3. 

4. 

5. 

1. 

2. 

The competent authority shall refuse authorisation to a CCP where, it is not satisfied as to the 
suitability  of  the  shareholders  or  members  that  have  qualifying  holdings  in  the  CCP,  taking 
into account the need to ensure the sound and prudent management of a CCP. 

Where  close  links  exist  between  the  CCP  and  other  natural  or  legal  persons,  the  competent 
authority shall grant authorisation only where those links do not prevent the effective exercise 
of the supervisory functions of the competent authority. 

Where  the  persons  referred  to  in  paragraph  1  exercise  an  influence  which  is  likely  to  be 
prejudicial  to  the  sound  and  prudent  management  of  the  CCP,  the  competent  authority  shall 
take appropriate measures to terminate that situation. 

The  competent  authority  shall  refuse  authorisation  where 
laws,  regulations  or 
administrative  provisions  of  a  third  country  governing  one  or  more  natural  or  legal  persons 
with which the CCP has close links, or difficulties involved in their enforcement, prevent the 
effective exercise of the supervisory functions of the competent authority.  

the 

Article 29 
Information to competent authorities 

A  CCP  shall  notify  the  competent  authority  of  any  changes  to  its  management,  and  shall 
provide the competent authority of all the information necessary to assess whether the board 
members are of sufficiently good repute and sufficiently experienced.  

Where  the  conduct  of  a  member  of  the  board  is  likely  to  be  prejudicial  to  the  sound  and 
prudent  management  of  the  CCP,  the  competent  authority  shall  take  appropriate  measures, 
including removing that member from the board. 

Any natural or legal person or such persons acting in concert (hereinafter referred to as “the 
proposed  acquirer’),  who  have  taken  a  decision  either  to  acquire,  directly  or  indirectly,  a 
qualifying  holding  in  a  CCP  or  to  further  increase,  directly  or  indirectly,  such  a  qualifying 
holding in a CCP as a result of which the proportion of the voting rights or of the capital held 
would  reach  or  exceed  10%,  20%,  30%  or  50%  or  so  that  the  CCP  would  become  its 
subsidiary (hereinafter referred to as the proposed acquisition), shall first notify in writing the 
competent authorities of the CCP in which they are seeking to acquire or increase a qualifying 
holding, indicating the size of the intended holding and relevant information, as referred to in 
Article 30(4). 

Any  natural  or  legal  person  who  has  taken  a  decision  to  dispose,  directly  or  indirectly,  of  a 
qualifying  holding  in  a  CCP  shall  first  notify  the  competent  authority  in  writing  thereof, 
indicating the size of the intended holding. Such a person shall likewise notify the competent 
authority where he has taken a decision to reduce his qualifying holding so that the proportion 
of the voting rights or of the capital held would fall below 10%, 20 %, 30 % or 50 % or so that 
the CCP would cease to be his subsidiary. 

The competent authority shall, promptly and in any event within two working days following 
receipt  of  the  notification  as  referred  to  in  paragraph  2,  as  well  as  following  receipt  of  the 
information referred to in paragraph 3, acknowledge receipt in writing thereof to the proposed 
acquirer or vendor. 

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The competent authority shall have a maximum of sixty working days as from the date of the 
written  acknowledgement  of  receipt  of  the  notification  and  all  documents  required  to  be 
attached  to  the  notification  on  the  basis  of  the  list  referred  to  in  Article  30(4)  (hereinafter 
referred to as the assessment period), to carry out the assessment provided for in Article 30(1) 
(hereinafter referred to as 'the assessment'). 

The competent authority shall inform the proposed acquirer or vendor of the date of the expiry 
of the assessment period at the time of acknowledging receipt. 

The  competent  authority  may,  during  the  assessment  period,  where  necessary,  and  no  later 
than on the 50th working day of the assessment period, request any further information that is 
necessary to complete the assessment. Such request shall be made in writing and shall specify 
the additional information needed. 

For the period between the date of request for information by the competent authority and the 
receipt  of  a  response  thereto  by  the  proposed  acquirer,  the  assessment  period  shall  be 
interrupted.  The  interruption  shall  not  exceed  20  working  days.  Any  further  requests  by  the 
competent authority for completion or clarification of the information shall be at its discretion 
but may not result in an interruption of the assessment period. 

The competent authority may extend the interruption referred to in the second subparagraph of 
paragraph 3 up to thirty working days where the proposed acquirer or vendor is either of the 
following: 

(a) 

situated or regulated outside the Union;  

(b) 

a natural or legal person not subject to supervision under this Regulation or Directives 
73/239/EEC,  85/611/EEC,  92/49/EEC,  2002/83/EC,  2003/41/EC,  2004/39/EC, 
2005/68/EC, 2006/48/EC, 2009/65/EC or 2010/.../EU (AIFM). 

Where  the  competent  authority,  upon  completion  of  the  assessment,  decides  to  oppose  the 
proposed  acquisition,  it  shall,  within  two  working  days,  and  not  exceeding  the  assessment 
period,  inform  the  proposed  acquirer  in  writing  and  provide  the  reasons  for  that  decision. 
Subject to national law, an appropriate statement of the reasons for the decision may be made 
accessible to the public at the request of the proposed acquirer. However, Member States may 
allow  a  competent  authority  to  make  such  disclosure  in  the  absence  of  a  request  by  the 
proposed acquirer. 

Where  the  competent  authority  does  not  oppose  the  proposed  acquisition  within  the 
assessment period, it shall be deemed to be approved. 

The competent authority may fix a maximum period for concluding the proposed acquisition 
and extend it where appropriate.  

Member  States  shall  not  impose  requirements  for  notification  to,  and  approval  by,  the 
competent authority of direct or indirect acquisitions of voting rights or capital that are more 
stringent than those set out in this Regulation. 

3. 

4. 

5. 

6. 

7. 

8. 

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40 

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Article 30 
Assessment 

1. 

Where assessing the notification provided for in Article 29(2) and the information referred to 
in  Article  29(3),  the  competent  authority  shall,  in  order  to  ensure  the  sound  and  prudent 
management of the CCP in which an acquisition is proposed, and having regard to the likely 
influence  of  the  proposed  acquirer  on  the  CCP,  appraise  the  suitability  of  the  proposed 
acquirer and the financial soundness of the proposed acquisition against all of  the following 
criteria: 

(a) 

the reputation and financial soundness of the proposed acquirer; 

(b) 

the reputation and experience of any person who will direct the business of the CCP as a 
result of the proposed acquisition; 

(c)  whether the CCP will be able to comply and continue to comply with the provisions set 

out in this Regulation; 

(d)  whether  there  are  reasonable  grounds  to  suspect  that,  in  connection  with  the  proposed 
acquisition, money laundering or terrorist financing within the meaning of Article 1 of 
Directive  2005/60/EC36  is  being  or  has  been  committed  or  attempted,  or  that  the 
proposed acquisition could increase the risk thereof.  

Where  assessing  the  financial  soundness  of  the  proposed  acquirer,  the  competent  authority 
shall  pay  particular  attention  to  the  type  of  business  pursued  and  envisaged  in  the  CCP  in 
which the acquisition is proposed. 

Where assessing the ability to comply with this Regulation, the competent authority shall pay 
particular  attention  to  whether  the  group  of  which  it  will  become  a  part  has  a  structure  that 
makes  it  possible  to  exercise  effective  supervision,  effectively  exchange  information  among 
the competent authorities and determine the allocation of responsibilities among the competent 
authorities. 

2. 

3. 

4. 

The  competent  authorities  may  oppose  the  proposed  acquisition  only  where  there  are 
reasonable grounds for doing so on the basis of the criteria set out in paragraph 1 or where the 
information provided by the proposed acquirer is incomplete. 

Member States shall neither impose any prior conditions in respect of the level of holding that 
must be acquired nor allow their competent authorities to examine the proposed acquisition in 
terms of the economic needs of the market. 

Member States shall make publicly available a list specifying the information that is necessary 
to carry out the assessment and that must be provided to the competent authorities at the time 
of notification referred to in Article 29(2). The information required shall be proportionate and 
adapted  to  the  nature  of  the  proposed  acquirer  and  the  proposed  acquisition.  Member  States 
shall not require information that is not relevant for a prudential assessment. 

36 

OJ L 309, 25.11.2005, p.15. 

EN 

41 

   EN 

                                                 
5. 

6. 

7. 

1. 

2. 

Notwithstanding Article 29(2), (3) and (4), where two or more proposals to acquire or increase 
qualifying holdings in the same CCP have been notified to the competent authority, the latter 
shall treat the proposed acquirers in a non-discriminatory manner. 

The  relevant  competent  authorities  shall  work  in  full  consultation  with  each  other  when 
carrying out the assessment where the proposed acquirer is one of the following: 

(a) 

(b) 

(c) 

institution,  assurance  undertaking, 

a  credit 
insurance  undertaking,  reinsurance 
undertaking,  investment  firm,  market  operator,  an  operator  of  a  security  settlement 
system,  a  UCITS  management  company  or  an  AIFM  authorised  in  another  Member 
State; 

the  parent  undertaking  of  a  credit  institution,  assurance  undertaking,  insurance 
undertaking, reinsurance undertaking, investment firm, market operator, an operator of a 
security  settlement  system,  a  UCITS  management  company  or  an  AIFM  authorised  in 
another Member State;  

a natural or legal person controlling a credit institution, assurance undertaking, insurance 
undertaking, reinsurance undertaking, investment firm, market operator, an operator of a 
security  settlement  system,  a  UCITS  management  company  or  an  AIFM  authorised  in 
another Member State. 

The competent authorities shall, without undue delay, provide each other with any information 
which  is  essential  or  relevant  for  the  assessment.  The  competent  authorities  shall,  upon 
request,  communicate  all  relevant  information  to  each  other  and  shall  communicate  all 
essential  information  at  their  own  initiative.  A  decision  by  the  competent  authority  that  has 
authorised  the  CCP  in  which  the  acquisition  is  proposed  shall  indicate  any  views  or 
reservations expressed by the competent authority responsible for the proposed acquirer. 

Article 31 
Conflicts of interest 

A  CCP  shall  maintain  and  operate  effective  written  organisational  and  administrative 
arrangements  to  identify  and  manage  any  potential  conflicts  of  interest  between  itself, 
including  its  managers,  employees,  or  any  person  directly  or  indirectly  linked  to  them  by 
control  or  close  links  and  its  clearing  members  or  their  clients  or  between  them.  It  shall 
maintain  and  implement  adequate  resolution  procedures  whenever  possible  conflicts  of 
interest occur.  

Where  the  organisational  or  administrative  arrangements  of  a  CCP  to  manage  conflicts  of 
interest  are  not  sufficient  to  ensure,  with  reasonable  confidence,  that  risks  of  damage  to  the 
interests of a clearing member or client will be prevented, it shall clearly disclose the general 
nature  or  sources  of  conflicts  of  interest  to  the  clearing  member  before  accepting  new 
transactions from that clearing member. Where the client is not known to the CCP, the CCP 
shall inform the clearing member whose client is concerned. 

3. 

Where  the  CCP  is  a  parent  undertaking  or  a  subsidiary,  the  written  arrangements  must  also 
take into account any circumstances, of which the CCP is or should be aware, which may give 

EN 

42 

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rise to a conflict of interest arising as a result of the structure and business activities of other 
undertakings with which it has a parent undertaking or a subsidiary relationship.  

4. 

The  written  arrangements  established  in  accordance  with  paragraph  1  shall  include  the 
following: 

5. 

1. 

2. 

(a) 

the circumstances which constitute or may give rise to a conflict of interest entailing a 
material risk of damage to the interests of one or more clearing members or clients; 

(b)  procedures to be followed and measures to be adopted in order to manage such conflicts. 

A CCP shall take all reasonable steps to prevent any misuse of the information maintained in 
its  systems  and  shall  prevent  the  use  of  that  information  held  for  other  business  activities. 
Sensitive information recorded in one CCP shall not be used for commercial use by any other 
natural or legal person that has a parent undertaking or a subsidiary relationship with the CCP. 

Article 32 
Business continuity 

A  CCP  shall  establish,  implement  and  maintain  an  adequate  business  continuity  policy  and 
disaster recovery plan aiming at ensuring the preservation of its functions, the timely recovery 
of  operations  and  the  fulfilment  of  the  CCP's  obligations.  Such  a  plan  shall  at  a  minimum 
allow for the recovery of all transactions at the time of disruption to allow the CCP to continue 
to operate with certainty and to complete settlement on the scheduled date. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
minimum content of the business continuity plan and the minimum level of services that the 
disaster recovery plan shall guarantee. 

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

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

Article 33 
Outsourcing 

1. 

Where  a  CCP  outsources  operational  functions,  services  or  activities,  it  shall  remain  fully 
responsible for discharging all of its obligations under this Regulation and shall comply at all 
times with the following conditions: 

(a) 

outsourcing does not result in the delegation of its responsibility; 

(b) 

the  relationship  and  obligations  of  the  CCP  towards  its  clearing  members  or  where 
relevant their clients are not altered; 

(c) 

the conditions for the authorisation of the CCP do not effectively change; 

EN 

43 

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(d)  outsourcing does not prevent the exercise of supervisory and oversight functions; 

(e) 

(f) 

outsourcing  does  not  result  in  depriving  the  CCP  from  the  necessary  systems  and 
controls to manage the risks it faces; 

the CCP retains the necessary expertise to evaluate the quality of the services provided, 
the  organisational  and  capital  adequacy  of  the  service  provider;  and  to  supervise  the 
outsourced  functions  effectively  and  manage  the  risks  associated  with  the  outsourcing 
and must constantly supervise those functions and manage those risks;  

(g) 

the CCP has direct access to the relevant information of the outsourced functions; 

(h) 

(i) 

the  service  provider  cooperates  with  the  competent  authority  in  connection  with  the 
outsourced activities; 

the  service  provider  protects  any  sensitive  and  confidential  information  relating  to  the 
CCP and its clearing members and clients. 

2. 

3. 

The  competent  authority  shall  require  the  CCP  to  clearly  allocate  and  set  out  its  rights  and 
obligations, and those of the service provider, in a written agreement. 

A CCP  shall make  all information necessary  to enable the competent authority to assess the 
compliance  of  the  performance  of  the  outsourced  activities  with  the  requirements  of  this 
Regulation available on request.  

Chapter 2 
Conduct of Business Rules 

Article 34 
General provisions 

1. 

When providing services to its clearing members, and where relevant, to their clients, a CCP 
shall act fairly and professionally in accordance with the best interests of the clearing members 
and clients and sound risk management. 

2. 

A CCP shall have transparent rules for the handling of complaints.  

Article 35 
Participation requirements 

1. 

A  CCP  shall  establish  the  categories  of  admissible  clearing  members  and  the  admission 
criteria. Such criteria shall be non-discriminatory, transparent and objective so as to ensure fair 
and open access to the CCP and shall ensure that clearing members have sufficient financial 
resources and operational capacity to meet the obligations arising from participation in a CCP. 
Criteria  that  restrict  access  shall  only  be  permitted  to  the  extent  that  their  objective  is  to 
control the risk for the CCP. 

EN 

44 

   EN 

2. 

3. 

4. 

5. 

6. 

1. 

2. 

3. 

1. 

2. 

A CCP shall ensure that the application of the criteria referred to in paragraph 1 is met on an 
on-going basis and shall have timely access to the information relevant for the assessment. A 
CCP shall conduct, at least once a year, a comprehensive review of the compliance with the 
provisions in this article by its clearing members. 

Clearing  members  that  clear  transactions  on  behalf  of  their  clients  shall  have  the  necessary 
additional  financial  resources  and  operational  capacity  to  perform  this  activity.  Clearing 
members shall, upon request, inform the CCP about the criteria and arrangements they adopt 
to allow their clients to access the services of the CCP. 

A CCP shall have objective and transparent procedures for the suspension and orderly exit of 
clearing members that no longer meet the criteria referred to in paragraph 1. 

A  CCP  may  only  deny  access  to  clearing  members  meeting  the  criteria  referred  to  in 
paragraph 1 where it is duly justified in writing and based on a comprehensive risk analysis.  

A  CCP  may  impose  specific  additional  obligations  on  clearing  members,  such  as,  but  not 
limited  to,  the  participation  in  auctions  of  a  defaulting  clearing  member's  position.  Such 
additional  obligations  shall  be  proportional  to  the  risk  brought  by  the  clearing  member  and 
shall not restrict participation to certain categories of clearing members. 

Article 36 
Transparency 

A CCP shall publicly disclose the  prices  and  fees associated with services provided. It shall 
disclose  the  prices  and  fees  of  single  services  and  functions  provided  separately,  including 
discounts  and  rebates  and  the  conditions  to  benefit  from  those  reductions.  It  shall  allow  its 
clearing members and, where relevant, their clients, separate access to specific services. 

A  CCP  shall  disclose  to  clearing  members  and  clients  the  risks  associated  with  the  services 
provided. 

A CCP shall publicly disclose the price information used to calculate its end of day exposures 
with  its  clearing  members  and  the  volumes  of  the  cleared  transactions  for  each  class  of 
instruments. 

Article 37 
Segregation and portability 

A CCP shall keep records and accounts that shall enable it, at any time and without delay, to 
identify  and  segregate  the  assets  and  positions  of  one  clearing  member  from  the  assets  and 
positions of any other clearing member and from its own assets. 

A CCP shall require each clearing member to distinguish and segregate in accounts with the 
CCP the assets and positions of that clearing member from those of its clients. A CCP shall 
allow clients to have a more detailed segregation of their assets and positions. The CCP shall 
publicly disclose the risks and costs associated with the different levels of segregation. 

EN 

45 

   EN 

3. 

4. 

5. 

Depending on the level of segregation chosen by a client, the CCP shall ensure that it is able to 
transfer on request at a pre-defined trigger event, without the consent of the clearing member 
and within a pre-defined transfer period its assets and positions to another clearing member. 
That  other  clearing  member  shall  only  be  obliged  where  it  has  previously  entered  into  a 
contractual relationship for that purpose.  

Provided that the client is not exposed to the default of the clearing member through which it 
has  access  to  the  CCP  or  of  any  other  clients,  Annex  III,  Part  2,  point  6  of  Directive 
2006/48/EC shall apply. 

The  requirements  set  out  in  paragraphs  1  to  4  shall  prevail  over  any  conflicting  laws, 
regulations and administrative provisions of the Member States that prevent the parties from 
fulfilling them. 

Chapter 3 
Prudential Requirements 

Article 38 
Exposure management 

A CCP shall measure and assess its liquidity and credit exposures to each clearing member and, where 
relevant, to another CCP with whom it has concluded an interoperable arrangement, on a near to real 
time  basis.  A  CCP  shall  have  access  in  a  timely  manner  and  on  a  non  discriminatory  basis  to  the 
relevant pricing sources to effectively measure its exposures.  

Article 39 
Margin requirements 

1. 

2. 

3. 

A  CCP  shall  impose,  call  and  collect  margins  to  limit  its  credit  exposures  from  its  clearing 
members,  and  where  relevant,  from  CCPs  which  have  interoperable  arrangements.  Such 
margins shall be sufficient to cover potential exposures that the CCP estimates will occur until 
the  liquidation  of  the  relevant  positions.  They  shall  be  sufficient  to  cover  losses  that  result 
from  at  least  99  per  cent  of  the  exposures  movements  over  an  appropriate  time  horizon  and 
they  shall  ensure  that  a  CCP  fully  collateralises  its  exposures  with  all  its  clearing  members, 
and  where  relevant  with  CCPs  which  have  interoperable  arrangements,  at  least  on  a  daily 
basis. 

A CCP shall adopt models and parameters in setting its margin requirements that capture the 
risk characteristics of the products cleared and take into account the interval between margin 
collections, market liquidity and the possibility of changes over the duration of the transaction. 
The models and parameters shall be validated by the competent authority and subject to a joint 
opinion of the college referred to in Article 15. 

A  CCP  shall  call  and  collect  margins  on  an  intraday  basis,  at  minimum  when  pre-defined 
thresholds are breached. 

EN 

46 

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4. 

5. 

1. 

2. 

A CCP shall segregate the margins posted by each clearing member and, where relevant, by 
CCPs  that  have  interoperable  arrangements  and  shall  ensure  the  protection  of  the  margins 
posted against the default of other clearing members, the institution where they are deposited, 
or of the CCP itself and from any other loss the CCP may experience. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
appropriate percentage and time horizon, as referred to in paragraph 1, to be considered for the 
different classes of financial instruments. 

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

ESMA, in consultation with EBA, shall submit drafts for those regulatory technical standards 
to the Commission by 30 June 2012. 

Article 40 
Default fund  

A  CCP  shall  maintain  a  default  fund  to  cover  losses  arising  from  the  default,  including  the 
opening of an insolvency procedure of one or more clearing members. 

A CCP shall establish the minimum size of contributions to the default fund and the criteria to 
calculate  the  contributions  of  the  single  clearing  members.  The  contributions  shall  be 
proportional  to  the  exposures  of  each  clearing  member,  in  order  to  ensure  that  the 
contributions  to  the  default  fund  at  least  enable  the  CCP  to  withstand  the  default  of  the 
clearing  member  to  which  it  has  the  largest  exposures  or  of  the  second  and  third  largest 
clearing members, if the sum of their exposures is larger. 

3. 

A  CCP  may  establish  more  than  one  default  fund  for  the  different  classes  of  instruments  it 
clears.  

Article 41 
Other risk controls 

1. 

2. 

In  addition  to  the  capital  required  in  Article  12,  a  CCP  shall  maintain  sufficient  available 
financial  resources  to  cover  potential  losses  that  exceed  the  losses  to  be  covered  by  margin 
requirements  and  the  default  fund.  Such  resources  may  include  any  other  clearing  fund 
provided  by  clearing  members  or  other  parties,  loss  sharing  arrangements,  insurance 
arrangements,  the  own  funds  of  a  CCP,  parental  guarantees  or  similar  provisions.  Such 
resources  shall  be  freely  available  to  the  CCP  and  shall  not  be  used  to  cover  the  operating 
losses. 

A CCP shall develop scenarios of extreme but plausible market conditions, which include the 
most volatile periods that have been experienced by the markets for which the CCP provides 
its services. The default fund referred to in Article 40 and the other financial resources referred 
to in paragraph 1 shall at all times enable the CCP to withstand the default of the two clearing 
members to which it has the largest exposures and shall enable the CCP to withstand sudden 
sales of financial resources and rapid reductions in market liquidity. 

EN 

47 

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3. 

4. 

5. 

1. 

2. 

3. 

4. 

1. 

2. 

A  CCP  shall  obtain  the  necessary  credit  lines  or  similar  arrangements  to  cover  its  liquidity 
needs  in  case  the  financial  resources  at  its  disposal  are  not  immediately  available.  Each 
clearing  member,  parent  undertaking  or  subsidiary  of  the  clearing  member  may  not  provide 
more than 25 per cent of the credit lines needed by the CCP. 

A CCP may require non-defaulting clearing members to provide additional funds in the event 
of a default of another clearing member. The clearing members of a CCP shall have limited 
exposures toward the CCP. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
extreme conditions referred to in paragraph 2 that the CCP shall withstand. 

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles 7 to 7d of Regulation …/… [ESMA Regulation]. 

ESMA, in consultation with EBA, shall submit drafts for those regulatory technical standards 
to the Commission by 30 June 2012. 

Article 42 
Default waterfall 

A CCP shall use the margins posted by a defaulting clearing member prior to other financial 
resources in covering losses. 

Where  the  margins  posted  by  the  defaulting  clearing  member  are  not  sufficient  to  cover  the 
losses incurred by the CCP, the CCP shall use the default fund contribution of the defaulting 
member to cover these losses. 

A  CCP  shall  use  contributions  to  the  default  fund  and  other  contributions  of  non-defaulting 
clearing  members  only  after  having  exhausted  the  contributions  of  the  defaulting  clearing 
member and, where relevant, the CCP's own funds referred to in Article 41(1). 

A CCP shall not be allowed to use the margins posted by non-defaulting clearing members to 
cover the losses resulting from the default of another clearing member.  

Article 43 
Collateral requirements 

A CCP shall only accept highly liquid collateral with minimal credit and market risk to cover 
its exposure to its clearing members. It shall apply adequate haircuts to asset values that reflect 
the potential for their value to decline over the interval between their last revaluation and the 
time by which they can reasonably be assumed to be liquidated. It shall take into account the 
liquidity risk following the default of a market participant and the concentration risk on certain 
assets that may result in establishing the acceptable collateral and the relevant haircuts. 

A  CCP  may  accept,  where  appropriate  and  sufficiently  prudent  the  underlying  of  the 
derivative contract or the financial instrument that originate the CCP exposure as collateral to 
cover its margin requirements. 

EN 

48 

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3. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
type of collateral that can be considered highly liquid and the haircuts referred to in paragraph 
1.  

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

ESMA,  in  consultation  with  the  ESCB  and  EBA,  shall  submit  drafts  on  those  regulatory 
technical standards to the Commission by 30 June 2012. 

Article 44 
Investment policy 

1. 

2. 

3. 

4. 

5. 

1. 

2. 

A  CCP  shall  only  invest  its  financial  resources  in  highly  liquid  financial  instruments  with 
minimal market and credit risk. The investments shall be capable of being liquidated rapidly 
with minimal adverse price effect. 

Financial  instruments  posted  as  margins  shall  be  deposited  with  operators  of  securities 
settlement  systems  that  ensure  non-discriminatory  access  to  CCPs  and  the  full  protection  of 
those  instruments.  A  CCP  shall  have  prompt  access  to  the  financial  instruments  when 
required. 

A  CCP  shall  not  invest  its  capital  or  the  sums  arising  from  the  requirements  referred  to  in 
Articles 39, 40 and 41 in its own securities or those of its parent or subsidiary undertaking. 

A CCP shall take into account its overall credit risk exposures to individual obligors in making 
its investment decision and shall ensure that its overall risk exposure to any individual obligor 
remains within acceptable concentration limits.  

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
highly  liquid  financial  instruments  referred  to  in  paragraph  1  and  the  concentration  limits 
referred to in paragraph 4.  

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

ESMA, in consultation with EBA, shall submit drafts on those regulatory technical standards 
to the Commission by 30 June 2012. 

Article 45 
Default procedures 

A  CCP  shall  have  procedures  in  place  to  be  followed  where  a  clearing  member  does  not 
comply with the requirements laid down in Article 35 within the time limit and according to 
the procedures established by the CCP. The CCP shall outline the procedures to be followed in 
the event the insolvency of a clearing member is not established by the CCP. 

A  CCP  shall  take  prompt  action  to  contain  losses  and  liquidity  pressures  resulting  from 
defaults  and  shall  ensure  that  the  closing  out  of  any  clearing  member's  positions  does  not 

EN 

49 

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3. 

4. 

1. 

2. 

3. 

4. 

disrupt its operations or expose the non-defaulting clearing members to losses that they cannot 
anticipate or control. 

The  CCP  shall  promptly  inform  the  competent  authority.  That  competent  authority  shall 
immediately  inform  the  authority  responsible  for  the  supervision  of  the  defaulting  clearing 
member where the CCP considers that the clearing member will not be able to meet its future 
obligations and when the CCP intends to declare its default.  

A  CCP  shall  establish  that  its  default  procedures  are  enforceable.  It  shall  take  all  the 
reasonable steps to ensure that it has the legal powers to liquidate the proprietary positions of 
the  defaulting  clearing  member  and  to  transfer  or  liquidate  the  client's  positions  of  the 
defaulting clearing member. 

Article 46 
Review of models, stress testing and back testing 

A  CCP  shall  regularly  review  the  models  and  parameters  adopted  to  calculate  its  margin 
requirements,  default  fund  contributions,  collateral  requirements  and  other  risk  control 
mechanisms.  It  shall  subject  the  models  to  rigorous  and  frequent  stress  tests  to  assess  their 
resilience in extreme but plausible market conditions and shall perform back tests to assess the 
reliability of the methodology adopted. The CCP shall inform the competent authority of the 
results of the tests performed and shall obtain its validation before adopting any change to the 
models and parameters. 

A CCP shall regularly test the key aspects of its default procedures and take all the reasonable 
steps to ensure that all clearing members understand them and have appropriate arrangements 
in place to respond to a default event. 

A CCP shall publicly disclose key information on its risk management model and assumptions 
adopted to perform the stress tests referred to in paragraph 1. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
following: 

(a) 

the  type  of  tests  to  be  undertaken  for  different  classes  of  financial  instruments  and 
portfolios; 

(b) 

the involvement of clearing members or other parties in the tests; 

(c) 

the frequency of tests; 

(d) 

the time horizons of tests; 

(e) 

the key information referred to in paragraph 3. 

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

ESMA, in consultation with EBA, shall submit drafts on those regulatory technical standards 
to the Commission by 30 June 2012.  

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1. 

2. 

3. 

1. 

2. 

3. 

Article 47 
Settlement 

A CCP shall, where available, use central bank money to settle its transactions. Where central 
bank money is not accessible, steps shall be taken to strictly limit credit and liquidity risks. 

A  CCP  shall  clearly  state  its  obligations  with  respect  to  deliveries  of  financial  instruments, 
including whether it has an obligation to make or receive delivery of a financial instrument or 
whether it indemnifies participants for losses incurred in the delivery process. 

Where a CCP has an obligation to make or receive deliveries of financial instruments, the CCP 
shall  eliminate  principal  risk  through  the  use  of  delivery-versus-payment  mechanisms  to  the 
extent possible. 

Title V 
Interoperability arrangements 

Article 48 
Interoperability Arrangements 

A  CCP  may  enter  into  an  interoperability  arrangement  with  another  CCP,  where  the 
requirements under Articles 49 and 50 are fulfilled. 

When  establishing  an  interoperability  arrangement  with  another  CCP  for  the  purpose  of 
providing services to a particular trading venue, the CCP shall have non discriminatory access 
to the data that it needs for the performance of its functions from that particular trading venue 
and to the relevant settlement system.  

Entering into an interoperability arrangement or accessing a data feed or a settlement system 
referred to in paragraphs 1 and 2, shall only be restricted, directly or indirectly, to control any 
risk arising from that arrangement or access. 

. 

1. 

CCPs that enter into an interoperability arrangement shall: 

Article 49 
Risk management 

(a) 

(b) 

(c) 

put  in  place  adequate  policies,  procedures  and  systems  to  effectively  identify,  monitor 
and manage the additional risks arising from the arrangement so that they can meet their 
obligations in a timely manner; 

agree on their respective rights and obligations, including the applicable law governing 
their relationships.; 

identify, monitor and effectively manage credit and liquidity risks so that a default of a 
clearing member of one CCP does not affect an interoperable CCP; 

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(d) 

identify, monitor and address potential interdependences and correlations that arise from 
an  interoperability  arrangement  that  may  affect  credit  and  liquidity  risks  related  to 
clearing member concentrations, and pooled financial resources.  

For the purposes of point (b), CCPs shall use the same rules concerning moment of entry of 
transfer  orders  into  their  respective  systems  and  the  moment  of  irrevocability,  as  set  out  in 
Directive 98/26/EC where relevant. 

For  the  purposes  of  point  (c),  the  terms  of  the  arrangement  shall  outline  the  process  for 
managing  the  consequences  of  the  default  where  one  of  the  CCPs  with  which  an 
interoperability arrangement has been concluded is in default. 

For  the  purposes  of  point  (d),  CCPs  shall  have  robust  controls  over  the  re-hypothecation  of 
clearing  members'  collateral  under  the  arrangement,  if  permitted  by  their  competent 
authorities.  The  arrangement  shall  outline  how  these  risks  have  been  addressed  taking  into 
account sufficient coverage and need to limit contagion. 

Where the risk management models used by the CCPs to cover their exposure to their clearing 
members  as  well  as  their  reciprocal  exposures  are  different,  the  CCPs  shall  identify  those 
differences,  assess  risks  that  may  arise  there  from  and  take  measures,  including  securing 
additional  financial  resources,  that  limit  their  impact  on  the  interoperability  arrangement  as 
well  as  their  potential  consequences  in  terms  of  contagion  risks  and  ensure  that  these 
differences  do  not  affect  each  CCP's  ability  to  manage  the  consequences  of  the  default  of  a 
clearing member. 

Article 50 
Approval of interoperability arrangement 

An  interoperability  arrangement  shall  be  subject  to  the  prior  approval  of  the  competent 
authorities of the CCPs involved. The procedure under Article 13 shall apply. 

The competent authorities shall only grant approval of the interoperability arrangement, where 
the  requirements  set  out  in  Article  49  are  met  and  the  technical  conditions  for  clearing 
transactions under the terms of the arrangement allow for a smooth and orderly functioning of 
financial  markets  and  that  the  arrangement  does  not  undermine  the  effectiveness  of 
supervision.  

Where  a  competent  authority  considers  that  the  requirements  set  out  in  paragraph  2  are  not 
met,  it  shall  provide  explanations  in  writing  regarding  its  risk  considerations  to  the  other 
competent authorities and the CCPs involved. It shall also notify ESMA, which shall issue an 
opinion  on  the  effective  validity  of  the  risk  considerations  as  grounds  for  denial  of  an 
interoperability  arrangement.  ESMA's  opinion  shall  be  made  available  to  all  the  CCPs 
involved.  Where  ESMA's  assessment  differs  from  the  assessment  of  the  relevant  competent 
authority, this authority shall reconsider its position, taking into account the opinion of ESMA.  

By  30  June  2012,  ESMA  shall  issue  guidelines  or  recommendations  with  a  view  to 
establishing consistent, efficient and effective assessments of interoperability arrangements, in 
accordance with the procedure laid down in Article 8 of Regulation …/… [ESMA Regulation]  

2. 

1. 

2. 

3. 

4. 

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Title VI 
Registration and surveillance of trade repositories  

Chapter 1 
Conditions and Procedures for Registration of a Trade Repository 

1. 

2. 

3. 

4. 

1. 

2. 

Article 51 
Registration of a Trade Repository 

A trade repository shall register with ESMA for the purposes of Article 6. 

In order to be registered, a trade repository shall be a legal person established in the Union and 
meet the requirements of Title VII.  

The registration of a trade repository shall be effective for the entire territory of the Union. 

A  registered  trade  repository  shall  comply  at  all  times  with  the  initial  conditions  for 
registration.  A  trade  repository  shall,  without  undue  delay,  notify  ESMA  of  any  material 
changes to the conditions for registration.  

Article 52 
Application for registration 

A trade repository shall submit an application for registration to ESMA. 

ESMA shall assess whether the application is complete within ten working days of receipt of 
the application.  

Where  the  application  is  not  complete,  ESMA  shall  set  a  deadline  by  which  the  trade 
repository is to provide additional information.  

After  assessing  an  application  as  complete,  ESMA  shall  notify  the  trade  repository 
accordingly. 

3. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
details of the application for registration to ESMA referred to in paragraph 1. 

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

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

4. 

In  order  to  ensure  uniform  application  of  paragraph  1,  powers  are  conferred  to  the 
Commission  to  adopt  implementing  standards  determining  the  format  of  the  application  for 
registration to ESMA. 

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The  implementing  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Article 7e of Regulation …/… [ESMA Regulation]. 

ESMA shall submit drafts for those standards to the Commission by 30 June 2012. 

Article 53 
Examination of the application 

ESMA  shall,  within  forty  working  days  from  the  notification  referred  to  in  the  third 
subparagraph  of  Article 52(2)  examine  the  application  for  registration  based  on  the 
compliance of the trade repository with the requirements set out in Articles 64 to 67 and adopt 
a fully reasoned Decision for registration or refusal.  

The Decision issued by ESMA pursuant to paragraph 1 shall take effect on the fifth working 
day following its adoption. 

Article 54 
Notification of the Decision 

Where  ESMA  adopts  a  Decision  to  register,  refuse  registration  or  withdraw  registration,  it 
shall notify the trade repository within 5 working days with a fully reasoned explanation of its 
Decision. 

ESMA shall communicate any Decision referred to in paragraph 1 to the Commission. 

ESMA shall publish on its website a list of trade repositories registered in accordance with this 
Regulation.  That  list  shall  be  updated  within  5  working  days  following  the  adoption  of  a 
Decision referred to in paragraph 1. 

Article 55 
Fines 

At the request of ESMA, the Commission may by decision impose on a trade repository a fine 
where, intentionally or negligently, the trade repository has infringed Articles 63(1), 64, 65, 66 
and 67 paragraphs 1 and 2 of this Regulation. 

The  fines  referred  to  in  paragraph  1  shall  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  concerned.  The  amount  of  the  fine  shall  not  exceed  20  per  cent  of  the  annual 
income or turnover of the trade repository of the preceding business year. 

Notwithstanding  paragraph  2,  where  the  trade  repository  has  directly  or  indirectly  gained  a 
quantifiable financial benefit from the breach, the amount of the fine has to be at least equal to 
that benefit. 

1. 

2. 

1. 

2. 

3. 

1. 

2. 

3. 

4. 

Powers are delegated to the Commission to adopt regulatory technical standards concerning:  

(a) 

detailed criteria for establishing the amount of the fine; 

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(b) 

the  procedures  for  enquiries,  associated  measures  and  reporting,  as  well  as  rules  of 
procedure for decision-making, including provisions on rights of defence, access to the 
file, legal representation, confidentiality and temporal provisions and the quantification 
and collection of the fines. 

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d] of Regulation …/… [ESMA Regulation]. 

ESMA shall submit drafts for those regulatory technical standards to the Commission by 30 
June 2012 at the latest. 

Article 56 
Periodic penalty payments 

1. 

At the request of ESMA, the Commission may, by decision, impose periodic penalty payments 
on any persons employed by or for a trade repository or related to it, in order to compel them: 

(a) 

to put an end to an infringement; 

(b) 

(c) 

to supply complete and correct information which ESMA has been requested pursuant to 
Article 61(2); 

to  submit  to  an  investigation  and  in  particular  to  produce  complete  records,  data, 
procedures or any other material required and to complete and correct other information 
provided in an investigation launched by ESMA pursuant to Article 61(2);  

(d) 

to submit to an on-site inspection ordered by ESMA pursuant to Article 61(2). 

The periodic penalty payments provided for shall be effective and proportionate. The amount 
of the periodic penalty payments shall be imposed for each day of delay. It shall not exceed 
5% of the average daily turnover in the preceding business year and shall be calculated from 
the date stipulated in the decision. 

Article 57 
Hearing of the persons concerned 

Before taking a decision on a fine or periodic penalty payment as provided for in Articles 55 
and 56, the Commission shall give the persons concerned the opportunity to be heard on the 
matters to which the Commission has taken objection.  

The Commission shall base its decisions only on objections on which the persons concerned 
have been able to comment. 

2. 

1. 

2. 

The rights of defence of the persons concerned shall be fully respected in the proceedings. 

Those  persons  shall  be  entitled  to  have  access  to  the  Commission's  file,  subject  to  the 
legitimate  interest  of  other  persons  in  the  protection  of  their  business  secrets.  The  right  of 
access  to  the  file  shall  not  extend  to  confidential  information  and  internal  documents  of  the 
Commission. 

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Article 58 
Provisions common to fines and periodic penalty payments 

1. 

2. 

The Commission shall disclose to the public every fine and periodic penalty payment that has 
been imposed in accordance with Articles 55 and 56. 

Fines  and  periodic  penalty  payments  imposed  pursuant  to  Articles  55  and  56  are  of  an 
administrative nature. 

Article 59 
Review by the Court of Justice 

The Court of Justice shall have unlimited jurisdiction to review decisions whereby the Commission has 
imposed a fine or a periodic penalty payment. The Court of Justice may annul, reduce or increase the 
fine or periodic penalty payment imposed. 

Article 60 
Withdrawal of registration 

1. 

ESMA  shall  withdraw  the  registration  of  a  trade  repository  in  any  of  the  following 
circumstances: 

(a) 

(b) 

the trade repository expressly renounces the registration or has provided no services for 
the preceding six months; 

the trade repository has obtained the registration by making false statements or by any 
other irregular means; 

(c) 

the trade repository no longer meets the conditions under which it was registered;  

(d) 

the  trade  repository  has  seriously  or  repeatedly  infringed  the  provisions  of  this 
Regulation. 

The competent authority of a Member State in which the trade repository services performs its 
services  and  activities  and  which  considers  that  one  of  the  conditions  referred  to  in 
paragraph 1  has  been  met,  may  request  ESMA  to  examine  whether  the  conditions  for 
withdrawal of registration are met. Where ESMA decides not to withdraw the registration of 
the trade repository concerned, it shall provide full reasons. 

Article 61 
Surveillance of Trade Repositories 

ESMA shall monitor the application of Articles 64 to 67. 

In order to carry out the duties set out in Articles 51 to 60, 62 and 63, ESMA shall have the 
following powers: 

(a) 

to access any document in any form and to receive or take a copy thereof;  

2. 

1. 

2. 

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(b)  demand  information  from  any  person  and,  if  necessary,  to  summon  and  question  a 

person with a view to obtaining information; 

(c) 

to carry out on-site inspections with or without announcement;  

(d) 

to require records of telephone and data traffic. 

Chapter 2 
Relations with third countries 

Article 62 
International agreements 

The  Commission  shall,  where  appropriate,  submit  proposals  to  the  Council  for  the  negotiation  of 
international agreements with one or more third countries regarding mutual access to, and exchange of 
information  on,  OTC  derivative  contracts  held  in  trade  repositories  which  are  established  in  third 
countries,  where  that  information  is  relevant  for  the  exercise  of  the  duties  of  competent  authorities 
under this Regulation.  

Article 63 
Equivalence and recognition 

1. 

2. 

3. 

A  trade  repository  established  in  a  third  country  may  provide  its  services  and  activities  to 
entities established in the Union for the purposes of Article 6 only where that trade repository 
is recognised by ESMA.  

ESMA shall recognise a trade repository from a third country, where the following conditions 
are met:  

(a) 

the trade repository is authorised in and is subject to effective surveillance in that third 
country; 

(b) 

the Commission has adopted a Decision in accordance with paragraph 3; 

(c) 

(d) 

the Union has entered into an international agreement with that third country, as referred 
to in Article 62; 

co-operation arrangements have been established pursuant to paragraph 4 to ensure that 
Union  authorities  have  immediate  and  continuous  access  to  all  the  necessary 
information. 

The Commission may adopt a Decision in accordance with the procedure referred to in Article 
69(2), determining that the legal and supervisory arrangements of a third country ensure that 
trade  repositories  authorised  in  that  third  country  comply  with  legally  binding  requirements 
which  are  equivalent  to  the  requirements  set  out  in  this  Regulation  and  that  these  trade 
repositories  are  subject  to  effective  supervision  and  enforcement  in  that  third  country  on  an 
ongoing basis. 

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4. 

ESMA  shall  establish  cooperation  arrangements  with  the  relevant  competent  authorities  of 
third  countries  whose  legal  and  supervisory  frameworks  have  been  considered  equivalent  to 
this  Regulation  in  accordance  with  paragraph 3.  Such  arrangements  shall  ensure  that  Union 
authorities  have  immediate  and  continuous  access  to  all  the  information  needed  for  the 
exercise of their duties. Those arrangements shall specify at least: 

(a) 

the  mechanism  for  the  exchange  of  information  between  ESMA,  any  other  Union 
authorities  that  exercise  responsibilities  in  accordance  with  this  Regulation  and  the 
competent authorities of third countries concerned; 

(b) 

the procedures concerning the coordination of supervisory activities. 

Title VII 
Requirements for trade repositories 

Article 64 
General requirements 

1. 

2. 

3. 

4. 

5. 

6. 

A  trade  repository  shall  have  robust  governance  arrangements,  which  include  a  clear 
organisational  structure  with  well  defined,  transparent  and  consistent  lines  of  responsibility 
and  adequate  internal  control  mechanisms,  including  sound  administrative  and  accounting 
procedures, which prevent the disclosure of confidential information. 

A  trade  repository  shall  establish  adequate  policies  and  procedures  sufficient  to  ensure  its 
compliance,  including  of  its  managers  and  employees  with  all  the  provisions  of  this 
Regulation. 

A  trade  repository  shall  maintain  and  operate  an  adequate  organisational  structure  to  ensure 
continuity  and  orderly  functioning  of  the  trade  repository  in  the  performance  of  its  services 
and  activities.  It  shall  employ  appropriate  and  proportionate  systems,  resources  and 
procedures. 

The senior management and members of the board of a trade repository shall be of sufficiently 
good  repute  and  experience  so  as  to  ensure  the  sound  and  prudent  management  of  the  trade 
repository.  

A 
trade  repository  shall  have  objective,  non-discriminatory  and  publicly  disclosed 
requirements for access and participation. Criteria that restrict access shall only be permitted 
to  the  extent  that  their  objective  is  to  control  the  risk  to  the  data  maintained  by  a  trade 
repository. 

A trade repository shall publicly disclose the prices and fees associated with services provided. 
It  shall  disclose  the  prices  and  fees  of  single  services  and  functions  provided  separately, 
including  discounts  and  rebates  and  the  conditions  to  benefit  from  those  reductions.  It  shall 
allow reporting entities to access specific services separately. The prices and fees charged by a 
trade repository shall be cost-related. 

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1. 

2. 

1. 

2. 

3. 

4. 

5. 

1. 

2. 

Article 65 
Operational reliability 

A  trade  repository  shall  identify  sources  of  operational  risk  and  minimise  them  through  the 
development of appropriate systems, controls and procedures. Such systems shall be reliable 
and secure, and have adequate capacity to handle the information received.  

A  trade  repository  shall  establish,  implement  and  maintain  an  adequate  business  continuity 
policy  and  disaster  recovery  plan  aiming  at  ensuring  the  preservation  of  its  functions,  the 
timely recovery of operations and the fulfilment of the trade repository's obligations. Such a 
plan shall at at least provide for the establishment of backup facilities. 

Article 66 
Safeguarding and recording 

A trade repository shall ensure the confidentiality, integrity and protection of the information 
received under Article 6.  

A  trade  repository  shall  promptly  record  the  information  received  under  Article  6  and  shall 
maintain  it  for  at  least  ten  years  following  the  termination  of  the  relevant  contracts.  It  shall 
employ  timely  and  efficient  record  keeping  procedures  to  document  changes  to  recorded 
information. 

A trade repository shall calculate the positions by class of derivatives and by reporting entity 
based on the details of the derivative contracts reported in accordance with Article 6. 

A trade repository shall allow the parties to a contract to access and correct the information on 
that contract at all times. 

A  trade  repository  shall  take  all  reasonable  steps  to  prevent  any  misuse  of  the  information 
maintained in its systems and shall prevent the use of that information held for other business 
activities.  

Confidential information recorded in one trade repository shall not be used for commercial use 
by any other natural or legal person that has a parent undertaking or a subsidiary relationship 
with the trade repository. 

Article 67 
Transparency and data availability  

A  trade  repository  shall  publish  aggregate  positions  by  class  of  derivatives  on  the  contracts 
reported to it. 

A trade repository shall make the necessary information available to the following entities: 

(a)  ESMA; 

(b) 

the  competent  authorities  supervising  undertakings  subject  to  the  reporting  obligation 
under Article 6; 

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3. 

4. 

1. 

2. 

3. 

(c) 

the competent authority supervising CCPs accessing the trade repository; 

(d) 

the relevant central banks of the ESCB. 

ESMA shall share the information necessary for the exercise of their duties with other relevant 
authorities. 

Powers are delegated to the Commission to adopt regulatory technical standards specifying the 
details of the information referred to in paragraphs (1) and (2). 

The  regulatory  technical  standards  referred  to  in  the  first  subparagraph  shall  be  adopted  in 
accordance with Articles [7 to 7d]of Regulation …/… [ESMA Regulation]. 

ESMA shall submit drafts for those regulatory technical standards to the Commission by 30 
June 2012 at the latest. 

Title VIII 
Transitional and final provisions  

Article 68 
Reports and Review 

By  31  December  2013  at  the  latest,  the  Commission  shall  review  and  report  on  the 
institutional  and  supervisory  arrangements  under  Title  III  and  in  particular  the  role  and 
responsibilities of ESMA. The Commission shall submit the report to the European Parliament 
and the Council, together with any appropriate proposals. 

By the same date, the Commission shall, in coordination with ESMA and the relevant sectoral 
authorities, assess the systemic importance of the transactions of non-financial firms in OTC 
derivatives. 

ESMA  shall  submit  reports  to  the  Commission  on  the  application  of  the  clearing  obligation 
under Title II and on the extension of the scope of interoperability arrangements under Title V 
to other transactions in classes of financial instruments than transferable securities and money-
market instruments. 

Those reports shall be communicated to the Commission by 30 September 2014 at the latest. 

The  Commission  shall,  in  cooperation  with  the  Member  States  and  ESMA,  and  after 
requesting  the  assessment  of  the  ESCB,  draw  up  an  annual  report  assessing  any  possible 
systemic risk and cost implications of interoperability arrangements.  

The report shall focus at  least on the number and complexity of such arrangements, and the 
adequacy of risk management systems and models. The Commission shall submit the report to 
the European Parliament and the Council, together with any appropriate proposals. 

The ESCB shall provide the Commission with its assessment of any possible systemic risk and 
cost implications of interoperability arrangements 

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Article 69 
Committee procedure 

1. 

2. 

3. 

The  Commission  shall  be  assisted  by  the  European  Securities  Committee  established  by 
Commission Decision 2001/528/EC37. 

Where reference is made to this paragraph, Article 5 and Article 7 of Decision 1999/468/EC 
shall apply, having regard to the provisions of Article 8 thereof. 

The period laid down in Article 5(6) of Decision 1999/468/EC shall be set at three months. 

Article 70 
Amendment to Directive 98/26/EC 

In Article 9(1), the following subparagraph is added:  

"Where  a  system  operator  has  provided  collateral  security  to  another  system  operator  in 
connection  with  an  interoperable  system,  the  rights  of  the  providing  system  operator  to  that 
collateral security shall not be affected by insolvency proceedings against the receiving system 
operator." 

Article 71 
Transitional provisions  

1. 

2. 

A  CCP  that  has  been  authorised  in  its  Member  State  of  establishment  to  provide  services 
before the date of entry into force of this Regulation shall seek authorisation for the purposes 
of this Regulation by [2 years after entry into force] at the latest. 

Derivative contracts that have been concluded prior to the date of application of this regulation 
registration  of  a  trade  repository  for  that  particular  type  of  contract  shall  be  reported  to  that 
trade repository within 120 days of the date of registration of that trade repository by ESMA.  

Article 72 
Entry into Force 

This  Regulation  shall  enter  into  force  on  the  twentieth  day  following  that  of  its  publication  in  the 
Official Journal of the European Union. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

37 

OJ L 191, 13.7.2001, p.45. 

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Done at […], 

For the European Parliament 
The President 

For the Council 
The President 

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