COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories
Date: 2017-05-04
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: administrative check, contract, financial instrument, financial legislation, financial transaction, futures market, market supervision, technical standard

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 4.5.2017  SWD(2017) 148 final   COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT  Accompanying the document Proposal for a Regulation of the European Parliament and of the Council  amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories {COM(2017) 208 final} {SWD(2017) 149 final}  
 
 
 
Table of contents 

GLOSSARY AND LIST OF ABBREVIATIONS USED .................................................. 4 

1. 

INTRODUCTION ....................................................................................................... 7 

2.  BACKGROUND AND POLICY CONTEXT ............................................................ 9 

2.1.  The over-the-counter (OTC) derivatives market ............................................... 9 
2.2.  The G20 reforms of the OTC derivatives market ............................................ 10 
2.3.  EMIR – the EU rules on OTC derivatives ....................................................... 11 
2.3.1.  Reporting obligations and requirements for TRs .............................. 11 
2.3.2.  Central  clearing  of  standardised  OTC  derivatives  and  CCP 

requirements ...................................................................................... 12 

2.3.3.  Risk-mitigation  techniques  for  uncleared  OTC  derivative 

contracts ............................................................................................. 13 
2.3.4.  Cross-border arrangements ................................................................ 14 
2.4.  EMIR and the implementation of the G20 OTC derivatives reforms ............. 14 
2.5.  Consistency with other EU policies ................................................................ 15 

3.  PROBLEM DEFINITION ........................................................................................ 16 

3.1.  Methodology .................................................................................................... 16 
3.1.1.  Selection of relevant issues for the definition of the problems ......... 16 
3.1.2.  Limitations when defining the magnitude of the problems ............... 17 
3.1.3.  The  relevance  of  the  network  structure  when  defining  the 

magnitude of the problems ................................................................ 18 
3.2.  Disproportionate prudential and transparency requirements ........................... 21 
3.2.1.  Mandatory clearing and risk-mitigation techniques .......................... 21 
3.2.2.  Scope of EMIR reporting requirements ............................................ 34 
Insufficient transparency of OTC derivatives positions and exposures .......... 39 
3.3.1.  Trade  repositories  – 

insufficient  quality  of  data  and 

3.3. 

difficulties of data use ....................................................................... 39 
3.3.2.  Trade repositories – insufficient fines ............................................... 41 
3.4. 
Insufficient access to clearing ......................................................................... 42 
3.5.  Potential risks from inaction ............................................................................ 48 

4.  OBJECTIVES ........................................................................................................... 51 

4.1.  Subsidiarity ...................................................................................................... 51 
4.2.  Objectives ........................................................................................................ 51 
4.3.  Consistency of the objectives with other EU policies ..................................... 51 
4.4.  Consistency of the objectives with fundamental rights ................................... 52 

5.  POLICY OPTIONS AND ANALYSIS OF IMPACT .............................................. 52 

5.1.  Methodology .................................................................................................... 52 
5.2.  Baseline scenario ............................................................................................. 53 
5.3.  On  compliance  costs  that  in  a  number  of  cases  outweigh  prudential 

benefits ............................................................................................................ 54 

2 

 
 
5.3.1.  On mandatory clearing and bilateral margin requirements that 
do  not  sufficiently  take  into  account  the  features  of  certain 
participants ........................................................................................ 54 

5.3.2.  On  excessively  burdensome  reporting  requirements  applying 

to certain transactions ........................................................................ 62 
5.3.3.  Overview of preferred options relating to compliance costs ............. 67 

5.4.  On  insufficient  transparency  of  OTC  derivatives  positions  and 

exposures ......................................................................................................... 67 
5.4.1.  Trade  repositories  – 

insufficient  quality  of  data  and 

difficulties of data use ....................................................................... 67 
5.4.2.  Trade repositories – insufficient fines ............................................... 70 
5.5.  On insufficient access to clearing .................................................................... 71 

6.  OVERALL IMPACT OF THE PACKAGE ............................................................. 76 

6.1.  Global estimates of cost reductions and impact on financial stability ............ 76 
6.1.1.  Avoiding liquidity costs for PSAs ..................................................... 76 
6.1.2.  Reducing compliance costs for NFCs ............................................... 76 
6.1.3.  Reducing compliance costs for small financials ............................... 77 
6.1.4.  Financial stability .............................................................................. 78 
6.1.5.  Global estimates of total cost reductions ........................................... 78 
6.2.  Small and medium-sized enterprises ............................................................... 81 
6.3.  Administrative burden ..................................................................................... 81 
6.4.  EU budget ........................................................................................................ 82 
6.5.  Social impacts .................................................................................................. 82 
6.6. 
Impact on third countries ................................................................................. 82 
6.7.  Environmental impacts .................................................................................... 83 

7.  MONITORING AND EVALUATION ..................................................................... 83 

ANNEX 

1:  OVERVIEW  OF  CHANGES  ADDRESSING 

THE 

RECOMMENDATIONS OF REGULATORY SCRUTINY BOARD (RSB) ......... 85 

ANNEX 2A: OVERVIEW OF DERIVATIVES MARKETS .......................................... 86 

ANNEX  2B:  ADDITIONAL  TABLES  AND  FIGURES  REFERRED  TO  IN 

THE TEXT ................................................................................................................ 92 

ANNEX  3:  PROCEDURAL  INFORMATION  CONCERNING  THE  PROCESS 
TO  PREPARE  THE  IMPACT  ASSESSMENT  REPORT  AND  THE 
RELATED INITIATIVE .......................................................................................... 97 

ANNEX  4:  PROCEDURAL 

ISSUES  AND  CONSULTATION  OF 

INTERESTED PARTIES .......................................................................................... 99 

ANNEX 5: EVALUATION ............................................................................................ 114 

ANNEX  6:  OTHER  CHANGES  TO  THE  EXISTING  FRAMEWORK  THAT 

ARE OUTSIDE OF THE ASSESSMENT SCOPE ................................................ 143 

ANNEX 7: WHO IS AFFECTED BY THE INITIATIVE AND HOW? ....................... 148 

ANNEX 8: APPROACH TO ESTIMATE COST REDUCTIONS ................................ 150 

3 

 
 
 
GLOSSARY AND LIST OF ABBREVIATIONS USED 

Glossary 

Central Counterparty (CCP) 

Clearing 

Clearing member/direct participant 

Collateral 

Counterparty credit risk 

Credit risk 

Margin (initial/variation) 

from 

arising 

obligations 

the  collateral  provider 

A  legal  person  that  interposes  itself  between 
the  counterparties  to  the  contracts  traded  on 
one  or  more  financial  markets,  becoming  the 
buyer  to  every  seller  and  the  seller  to  every 
buyer. 
The process of establishing positions, including 
the calculation of net obligations, and ensuring 
that  financial  instruments,  cash,  or  both,  are 
available  to  secure  the  exposures  arising  from 
those positions. 
An  undertaking  which  participates  in  a  CCP 
and  which  is  responsible  for  discharging  the 
financial 
that 
participation. 
An asset or third-party commitment that is used 
by 
to  secure  an 
obligation  to  the  collateral  taker.  Collateral 
arrangements  may  take  different  legal  forms; 
collateral may be obtained using the method of 
title transfer or pledge. 
The  risk  that  a  counterparty  will  not  settle  an 
obligation for full value, either when due or at 
any  time  thereafter.  Credit  risk  includes  pre-
settlement  risk  (replacement  cost  risk)  and 
settlement risk (principal risk). 
The  risk  of  a  change  in  value  due  to  actual 
credit  losses  deviating  from  expected  credit 
losses  due  to  the  failure  to  meet  contractual 
debt obligations.  
Credit  risk  comprises  default  and  settlement 
risk.  Credit  risk  can  arise  on  issuers  of 
securities 
investment 
(e.g.  mortgagors),  or 
portfolio),  debtors 
counterparties  (e.g.  on  derivative  contracts,  or 
deposits)  and  intermediaries,  to  whom  the 
company has an exposure. 
An  asset  (or  third-party  commitment)  that  is 
accepted  by 
ensure 
performance  on  potential  obligations  to  it  or 
cover  market  movements  on  unsettled 
transactions. 
‘Initial  margin’  means  margins  collected  by 
the  CCP  to  cover  potential  future  exposure  to 
clearing  members  providing  the  margin  and, 
where  relevant,  interoperable  CCPs  in  the 
interval between the last margin collection and 
the liquidation of positions following a default 
of  a  clearing  member  or  of  an  interoperable 
CCP default.  
‘Variation  margin’  means  margins  collected 
to  reflect  current  exposures 
or  paid  out 

the  company’s 

counterparty 

(in 

to 

a 

4 

 
 
 
Non-Financial Counterparty (NFC) 

OTC 

OTC derivative 

Small Financial Counterparty 

risk  mitigation 

it  becomes  subject 

resulting from actual changes in market price. 
An  undertaking  established  in  the  European 
Union  that  is  not  a  CCP  or  a  financial 
counterparty,  as  defined  in  Article  2(9)  of 
EMIR.  The  requirements  of  EMIR  vary 
depending  on  the  profile  of  a  non-financial 
counterparty.   
In  determining  whether  an  NFC  should  be 
subject  to  the  clearing  obligation,  EMIR  gives 
consideration  to  the  purpose  for  which  that 
NFC uses OTC derivative contracts as well as 
to the size of the exposures that it has in those 
instruments.  NFCs  are  subject  to  the  clearing 
techniques 
obligation  and 
requirements  where  their  positions  in  non-
hedging  OTC  derivatives  exceed  certain 
thresholds defined by ESMA. 
The thresholds are EUR 1 bn in gross notional 
value  for  credit  and  equity  derivatives  and 
EUR  3  bn  for  interest  rate,  foreign  exchange, 
and  commodity  or  other  derivatives.  Once  an 
NFC  surpasses  one  of  these  thresholds  in  any 
asset  class, 
these 
requirements  across  all  asset  classes.  These 
NFCs  are  commonly  referred  to  as  'NFC+'  as 
opposed  to  NFCs  below  the  threshold  which 
are known as 'NFC-'. 
The phrase "over-the-counter" (or OTC) can be 
used  to  refer  to  stocks  that  trade  via  a  dealer 
network as opposed to on a regulated market. It 
also refers to debt securities and other financial 
instruments  such  as  derivatives,  which  are 
traded through a dealer network. 
A  derivative  contract  the  execution  of  which 
does  not  take  place  on  a  regulated  market  as 
within  the  meaning  of  Article  4(1)(14)  of 
Directive  2004/39/EC  or  on  a  third-country 
market considered as equivalent to a regulated 
market  in  accordance  with  Article  19(6)  of 
Directive 2004/39/EC. 
Financial counterparty as defined in Category 3 
existing  Commission  Delegated 
of 
Regulations1  on  the  clearing  obligation.  These 
are  financial  counterparties  (and  certain  funds 
which 
non-financial 
counterparties)  belonging  to  a  group  whose 
aggregate  positions  in  OTC  derivatives  are 
EUR 8bn or below.  

classified 

the 

are 

as 

to 

1  Commission Delegated Regulation (EU) 2015/2205 of 6 August 2015 supplementing Regulation (EU) 
No  648/2012,  OJ  L  314,  1.12.2015,  p.  13;  Commission  Delegated  Regulation  (EU)  2016/592  of  1 
March  2016  supplementing  Regulation  (EU)  No  648/2012,  OJ  L  103,  19.4.2016,  p.  5,  and 
Commission Delegated Regulation (EU) 2016/1178 supplementing Regulation (EU) No. 648/2012, OJ 
L 195, 20.7.2016, p. 3. 

5 

 
 
                                                 
List of abbreviations used 

CDS 
CCP 
CMU 
EMIR 

ESA 
ESCB 
ESMA 
ESRB 
ETD 
IRS 
ISDA 
NFC 
NFC+ 

NFC- 

OTC 
SFC 
SFTR 

SIMM 

TR 
VM 

Credit Default Swaps 
Central Counterparty 
Capital Markets Union 
'European  Markets  Infrastructure  Regulation', 
short  for:  Regulation  (EU)  No  648/2012  of  the 
European  Parliament  and  of  the  Council  of  4 
July  2012  on  OTC  derivatives,  central 
counterparties and trade repositories 
European Supervisory Authority 
European System of Central Banks 
European Securities and Markets Authority 
European Systemic Risk Board 
Exchange-Traded Derivatives 
Interest Rate Swaps 
International Swaps and Derivatives Association 
Non-Financial Counterparty 
A non-financial counterparty whose positions in 
non-hedging  OTC  derivatives  exceed  certain 
thresholds defined by ESMA and that therefore 
is  subject  to  the  clearing  obligation  and  risk 
mitigation techniques requirements provided for 
in  EMIR  (cf.  also  Non-Financial  Counterparty 
in the Glossary of this document). 
A non-financial counterparty whose positions in 
non-hedging  OTC  derivatives  do  not  exceed 
certain  thresholds  defined  by  ESMA  and  that 
therefore is not subject to the clearing obligation 
and  risk  mitigation  techniques  requirements 
provided  for  in  EMIR  (cf.  also  Non-Financial 
Counterparty in the Glossary of this document). 
Over The Counter 
Small Financial Counterparty 
'Securities  Financing  Transactions  Regulation', 
short  for:  Regulation  (EU)  2015/2365  of  the 
European  Parliament  and  of  the  Council  of  25 
November  2015  on  transparency  of  securities 
financing 
reuse  and 
transactions  and  of 
amending Regulation (EU) No 648/2012. 
ISDA’s  proprietary  Standard  Initial  Margin 
Model for non-cleared derivatives 
Trade Repository 
Variation Margin 

6 

 
 
 
 
1. 

INTRODUCTION 

In  the  wake  of  the  financial  crisis,  the  EU  adopted  in  2012  the  European  Market 
Infrastructure  Regulation2  (EMIR)  to  address  the  shortcomings  observed  in  the 
functioning of the over-the-counter (OTC) derivatives market.  

One of the key shortcomings was that regulators lacked information about activity in the 
OTC  derivatives  market;  this  meant  that  risks  could  remain  unnoticed  until  they 
materialised. Moreover, counterparty credit risk between OTC derivative counterparties 
was often unmitigated, which could lead to losses materialising were one counterparty to 
default  prior  to  fulfilling  its  obligations.  Due  to  the  high  volumes  of  OTC  transactions 
across  the  derivatives  market  and  the  interconnectedness  of  market  participants,  such 
losses could pose a broader threat to the financial system3. 

These shortcomings led the G20 leaders in 2009 to commit to far-reaching measures to 
increase the stability of the OTC derivatives market, including that all standardised OTC 
derivatives  contracts  should  be  cleared  through  central  counterparties  (CCPs),  and  that 
OTC derivatives contracts should be reported to trade repositories (TRs).  

EMIR implements the 2009 G20 commitment in the EU. The main objective of EMIR is 
to  reduce  systemic risk4  by increasing the transparency  of the OTC derivatives market, 
by mitigating the counterparty credit risk and by reducing the operational risk associated 
with  OTC  derivatives.  To  that  end,  EMIR  establishes  core  requirements  on  OTC 
derivatives, CCPs and TRs. They include: 

1.  Central clearing of standardised OTC derivative contracts; 
2.  Margin requirements for OTC derivative contracts that are not centrally cleared;  
3.  Operational risk mitigation requirements for OTC derivative contracts that are not 

centrally cleared; 

4.  Reporting obligations for derivative contracts; 
5.  Requirements for CCPs; and 
6.  Requirements for TRs. 

EMIR entered into force on 16 August 2012. However, most of the requirements did not 
immediately  become  applicable,  as  EMIR  empowered  the  Commission  to  adopt 
secondary legislation specifying the technical practicalities and the phase-in schedule of 
the  core  requirements.  As  a  result,  the  requirements  have  entered  into  application  in 
different stages. Some of them, such as mandatory clearing and margin requirements for 

2  Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC 

derivatives, central counterparties and trade repositories. 

4 

3  Commission  Staff  Working  Document  Impact  Assessment,  accompanying  document  to  the  proposal 
for  a  Regulation  of  the  European  Parliament  and  of  the  Council  on  OTC  derivatives,  central 
counterparties  and  trade  repositories.  SEC(2010)  1059,  available  at  http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX%3A52010SC1058.  
Systemic risk is defined in Article 2(c) of Regulation (EU) No 1092/2010 of the European Parliament 
and  of  the  Council  of  24  November  2010  on  European  Union  macro-prudential  oversight  of  the 
financial  system  and  establishing  a  European  Systemic  Risk  Board  as  “risk  of  disruption  in  the 
financial system with the potential to have serious negative consequences for the internal market and 
the real economy. All types of financial intermediaries, markets and infrastructure may be potentially 
systemically important to some degree.” 

7 

 
 
                                                 
uncleared derivatives, have either only recently come into operation or will soon start to 
apply5.  

In  accordance  with  Article  85(1)  of  EMIR,  the  Commission  was  mandated,  by  August 
2015,  to  review  EMIR  and  to  prepare  a  general  report  for  submission  to  the  European 
Parliament and the Council. 

From May to August 2015, the Commission carried out an extensive assessment of the 
rules  currently  in  place  to  prepare  the  report  and  a  possible  legislative  proposal.6  The 
assessment  included  a  public  consultation7  with  more  than  170  contributions  from  a 
broad  range  of  stakeholders,  as  well  as  reports  required  under  Article  85(1)  of  EMIR 
from  the  European  Securities  and  Markets  Authority  (ESMA),  the  European  Systemic 
Risk Board (ESRB), and the European System of Central Banks (ESCB). In addition, it 
was  decided  to  wait  to  take  into  account  the  input  to  the  Call  for  Evidence  on  the  EU 
Regulatory  framework  for  financial  services8  carried  out  between  September  2015  and 
January  2016,  in  order  to  get  further  evidence  on  the  state  of  play  of  EMIR 
implementation.  The  assessment  also  considered  replies  to  this  initiative,  to  the  extent 
they concerned provisions in EMIR. 

In  November  2016,  the  Commission  adopted  the  EMIR  report9.  On  the  one  hand,  the 
report indicated that no fundamental change should be made to the nature of the core 
requirements  of  EMIR,  which  are  integral  to  ensuring  transparency  and  mitigating 
systemic  risk  in  the  derivatives  market  and  for  which  there  is  general  support  from 
authorities and market participants. In addition, a comprehensive review of the impact of 
EMIR is not yet possible since certain core requirements provided for under EMIR have 
yet to be implemented or completed.  

On  the  other  hand,  the  report  pointed  to  the  possibility  of  amending  EMIR  in  some 
specific  areas  so  as  to  eliminate  disproportionate  costs  and  burdens  on  certain 
derivatives counterparties and to simplify rules without compromising the objectives of 
the legislation.  

The  need  to  eliminate  disproportionate  costs  and  burdens  to  small  companies,  and  to 
simplify  rules  without  putting  financial  stability  at  risk  is  why  the  EMIR  review  was 
included  in  the  2016  Commission's  Regulatory  Fitness  and  Performance  programme 
(REFIT).10   

As  part  of  REFIT,  the  Commission  assessed  the  extent  to  which  specific  policy 
requirements in EMIR have met their objectives in an efficient and effective way, while 
at the same time being coherent, relevant and providing EU added-value. That evaluation 
fed  into  the  problem  definition  of  the  impact  assessment  and  is  presented  in  Annex  5. 
The evaluation indicates that, even though the impact on the reduction of systemic risk is 

5   See Annex 2A for an overall description of the markets regulated by EMIR. 
6 
See Annex 3 for relevant timelines and procedural steps. 
7 
See Annex 4 for a detailed overview of the outcome of the public consultations. 
8 
http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm. 
9  Report  from  the  Commission  to  the  European  Parliament  and  the  Council  under  Article  85(1)  of 
Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC 
derivatives,  central  counterparties  and  trade  repositories  COM(2016)  857  final  of  23.11.2016. 
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1480141638729&uri=COM:2016:857:FIN  
10   See  European  Commission,  REFIT  and  the  10  Priorities  of  the  Commission,  25  October  2016. 

http://ec.europa.eu/atwork/pdf/201621025_refit_scoreboard_summary_en.pdf.    

8 

 
 
                                                 
not yet fully measurable, EMIR may impose in some targeted areas disproportionate 
costs  and  burdens  and  that  certain  requirements  may  be  simplified  to  achieve  the 
objective  of 
(1) 
financial  stability  more  efficiently.  These  areas 
Disproportionate  compliance  costs  for  derivatives  counterparties  that  are  part  of  the 
periphery of the derivatives trading network (e.g. small financials, NFCs, pension funds); 
(2) Insufficient transparency; and (3) Access to clearing. 

include: 

This  impact  assessment  report  therefore  considers  the  costs  and  benefits  of  areas  of 
EMIR  where  targeted  action  could ensure  fulfilment  of  the EMIR  objectives  in  a  more 
proportionate, efficient and effective manner. 

This  impact  assessment  provides  comprehensive  evidence  that  a  reduction  of  costs 
and burdens can be achieved hand-in-hand with a simplification of EMIR, without 
compromising  financial  stability.  Such  evidence  includes  input  received  from  market 
participants and various authorities. The feedback that is not addressed in this report will 
be examined further and considered separately for future action. 

2.  BACKGROUND AND POLICY CONTEXT 

2.1.  The over-the-counter (OTC) derivatives market 

The  European  market  infrastructure  regulation  (EMIR)  establishes  rules  on  OTC 
derivatives,  central  counterparties  and  trade  repositories.  The  section  below  provides  a 
definition of each concept. 

A derivative is a financial contract linked to the fluctuation in the price of an underlying 
asset  or  a  basket  of  assets.  Examples  of  assets  on  which  a  derivative  contract  can  be 
written include equities, commodities or emission allowances. The value of a derivative 
can also be derived from the value of a market variable (e.g. an interest rate, an exchange 
rate or a stock index) 11.   

The  purpose  of  derivatives  is  to  redistribute  risk  amongst  the  counterparties  to  the 
contract.  Derivatives  can  be  used  for  insuring  against  risk  (hedging)  as  well  as  for 
speculative purposes.  

An  OTC  derivative  is  one  which  is  privately  negotiated  and  not  traded  on  a  regulated 
exchange such as regulated markets. 

Activities  in  the  area  of  OTC  derivatives  are  in  the  trillions.  As  of  end-June  2016,  the 
outstanding  notional12  of  OTC  derivatives  amounted 
trillion, 
corresponding to 89% of the overall derivatives market13. OTC derivatives therefore have 
a significant impact on the real economy, from mortgages to food prices.   

to  USD  544.1 

11  See 

European 

FAQs 
(http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/314&format=HTML&aged=0&l
anguage=EN&guiLanguage=en). 

Commission, 

“Derivatives 

Markets”, 

12   Notional  amounts  provide  measure of  market  size  and  a reference from  which  contractual payments 

are determined in derivatives markets.      

13   See Bank for International Settlements, Triennial Central Bank Survey - OTC derivatives positions at 
end-June  2016,  Table  1,  Monetary  and  Economic  Department,  11  December  2016, 
http://www.bis.org/publ/otc_hy1612/triensurvstatannex.pdf      

9 

 
 
                                                 
Central  counterparties  (CCPs)  interpose  themselves  between  counterparties  to  a 
derivative contract, becoming the buyer to every seller and the seller to every buyer. In 
doing  so,  CCPs  become  the  focal  point  for  derivative  transactions,  linking  multiple 
financial  actors,  thus  increasing  market  transparency  and  reducing  the  risks  inherent  in 
derivatives market. Such risks include counterparty risk, liquidity risk and market risk.   

Every  day  CCPs  clear  thousands  of  financial  transactions  in  a  range  of  financial 
instruments  including  equities,  bonds,  commodities,  derivatives,  repos.  Before  the 
financial  crisis,  derivatives  traded  outside  regulated  markets  were  usually  not  cleared 
through CCPs. 

Trade repositories (TRs) are central data centres that collect and maintain the records of 
derivative transactions. They play a key role in enhancing the transparency of derivative 
markets and reducing risks to financial stability. 

An overview of the main participants and of the structure of the OTC derivatives market 
is provided in Annex 2A. 

2.2.  The G20 reforms of the OTC derivatives market 

Derivatives  play  an  important  role  in  the  economy,  but  they  also  bring  certain  risks. 
These  risks  were  highlighted  during  the  2008  financial  crisis,  when  significant 
weaknesses in the OTC derivatives markets became evident. 

In the run-up to the financial crisis, the use of OTC derivatives had experienced a sharp 
growth. According to BIS data, notional amounts of all types of OTC contracts stood at 
USD  683.7  trillion  at  the  end  of  June  2008,  15%  higher  than  at  the  end  of  December 
200714. 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. 

The  financial  crisis  brought  the  OTC  derivatives  market  to  the  forefront  of  regulatory 
attention. Given the global nature of the OTC derivatives market, the G20 took a leading 
role  in  seeking  to  tackle  the  shortcomings  of  that  market  and  in  coordinating  a  policy 
response. In September 2009 in Pittsburgh, the G20 leaders agreed that "All standardised 
OTC derivatives contracts should be […] cleared through central counterparties by end-
2012 at latest. OTC derivatives contracts should be reported to trade repositories. Non-
centrally cleared contracts should be subject to higher capital requirements15".  

At European level, EMIR, together with other pieces of EU legislation, implemented the 
G20's non-binding commitment to increase the stability of the OTC derivatives market. 
Similar  initiatives  were  undertaken  across  G20  jurisdictions,  such  as  in  certain  Asian 
countries (Hong Kong, Japan, Singapore and South Korea), and in the US via the Dodd-
Frank  Wall Street Reform and Consumer Protection Act, which was signed into law in 

14  C.f.  Commission  Staff  Working  Document, 

Impact 

assessment 

{SEC(2010)  1059}, 

http://ec.europa.eu/finance/financial-markets/docs/derivatives/20100915_impact_assessment_en.pdf;  
BIS:  Monetary and Economic Department, OTC derivatives market activity in the first half of 2008, 
November 2008, http://www.bis.org/publ/otc_hy0811.pdf. 
15   http://www.g20.utoronto.ca/2009/2009communique0925.html  

10 

 
 
                                                 
July  2010.  Today,  many  derivatives  regulators  across  the  globe  have  transposed  this 
commitment into their legislative frameworks. 

2.3.  Several  international  work  streams  help  coordinate  the  G20  derivatives 
market  reforms  under  the  frameworkEMIR  –  the  EU  rules  on  OTC 
derivatives   

In  response  to  the  financial  crisis,  the  EU  adopted  EMIR  in  2012.  Its  aims  were  to  (i) 
increase  transparency  in  the  OTC  derivatives  markets  (ii)  mitigate  counterparty  credit 
risk, and (iii) reduce operational risk.  

EMIR establishes core requirements for the OTC derivatives market. In addition to these, 
EMIR  empowered  the  Commission  to  adopt  delegated  acts  in  accordance  with  Article 
290  of  the  Treaty  on  the  Functioning  of  the  European  Union  to  spell  out  the  details  of 
some requirements. EMIR also required the European Securities and Markets Authority 
(ESMA)  to  draft  regulatory  technical  standards  for  these  delegated  acts  and  carry  out 
appropriate impact assessments. 

Therefore, while EMIR entered into force in August 2012, not all of the requirements it 
sets  out  already  apply.  The  provisions  of  EMIR,  together  with  the  deadlines  included 
within  the  different  technical  standards,  imply  a  phased-in  application  of  the  legal 
framework. 

The  section  below  provides  an  overview  of  EMIR's  main  requirements,  including  their 
scope and date of entry into application.  

2.3.1.  Reporting obligations and requirements for TRs 

In  order to increase transparency, EMIR introduces reporting requirements to  make the 
derivatives market more transparent. The requirements include the following: 

-  detailed  information  on  each  derivative  contract  has  to  be  reported  to  trade 

repositories (TRs) and made available to supervisory authorities; 

-  TRs have to publish aggregate positions by class of derivatives, for both OTC and 

listed derivatives; and 

-  ESMA  is  responsible  for  the  surveillance  of  TRs  and  for  granting  and 

withdrawing accreditation. 

Today, there are six authorised TRs in the EU16. These TRs provide daily data to over 60 
institutions  in  the  EU,  which  have  access  to  the  data  pertaining  to  their  respective 
jurisdiction17. EMIR grants ESMA and the European Systemic Risk Board (ESRB) with 
exclusive access to the full EU-wide data. 

The  scope  of  the  reporting  requirement  is  broad.  It  applies  to  all  derivatives  classes 
(including  credit,  commodity,  equity,  interest  rates,  foreign  exchange  and  "other")  and 
encompasses  trades  cleared  by  CCPs.  Both  OTC  and  exchange-traded  contracts  are 
covered. Furthermore, the reporting obligation applies to all counterparties. The reporting 
obligation aims to provide a full picture of the EU derivatives market in order to provide 

16   Annex 2A provides a list 
17  ESCB, Occasional Paper Series No11/ September 2016, Shedding light on dark markets: First insights 

from the new EU-wide OTC derivatives dataset. 

11 

 
 
                                                 
complete  and  comprehensive  information  on  OTC  derivatives  positions.  The  reporting 
requirement became applicable in February 2014. 

2.3.2.  Central  clearing  of  standardised  OTC  derivatives  and  CCP 
requirements  

EMIR introduced rules to reduce the counterparty credit risk of derivatives contracts. In 
particular: 

- 

all  standardised  OTC  derivatives  contracts  must  be  centrally  cleared  through 
CCPs; 

-  CCPs  must  comply  with  stringent  prudential,  organisational  and  conduct  of 
business  requirements  in  order  to  adequately  cover  their  exposures  to  diverse 
risks. EMIR also ensures that CCPs are subject to robust supervisory oversight. 
if a contract is not cleared by a CCP, risk mitigation techniques must be applied.   

- 

There are currently 17 CCPs that have been authorised to offer services and activities in 
the Union18.   

The  scope  of  the  clearing  obligation  is  far-reaching  and  includes  all  financial 
counterparties19  and  the  biggest  non-financial  counterparties  (NFCs).  This  is  because 
EMIR intends to cover all relevant market participants in order to cover all risks linked to 
derivatives transactions. 

EMIR does however only aim at 'systemic' NFCs: it acknowledges that NFCs use OTC 
derivative  contracts  in  order  to  cover  themselves  against,  i.e.  hedge,  commercial  risks 
directly linked to their commercial or treasury financing activities. NFCs are subject to 
the  clearing  obligation  where  their  positions  in  non-hedging  OTC  derivatives  exceed 
certain  thresholds  defined  in  regulatory  technical  standards20.  Once  an  NFC  surpasses 
one  of  these  thresholds  in  any  asset class,  it  becomes  subject  to  the  clearing  obligation 
across all asset classes. These NFCs are commonly referred to as 'NFC+' as opposed to 
NFCs below the threshold which are known as 'NFC-'. 

The EU has adopted three central clearing determinations, on the basis of draft regulatory 
technical standards drafted by ESMA, following analysis carried out according to criteria 
set out in EMIR. The determinations cover two different asset classes: OTC interest rate 
derivatives – which represent by far the largest segment of OTC outstanding derivatives 

18   ESMA, in accordance with Article 88(1) of EMIR, publishes a list of the CCPs that are authorised to 

offer services and activities in the Union. 

19  Article  2(8)  of  EMIR  provides  a  definition  of  financial  counterparty.  It  refers  to  an  investment  firm 
authorised in accordance with Directive 2004/39/EC, a credit institution authorised in accordance with 
Directive 2006/48/EC, an insurance undertaking authorised in accordance with Directive 73/239/EEC, 
an  assurance  undertaking  authorised  in  accordance  with  Directive  2002/83/EC,  a  reinsurance 
undertaking  authorised  in  accordance  with  Directive  2005/68/EC,  a  UCITS  and,  where  relevant,  its 
management  company,  authorised  in  accordance  with  Directive  2009/65/EC,  an  institution  for 
occupational retirement provision within the meaning of Article 6(a) of Directive 2003/41/EC and an 
alternative investment fund managed by AIFMs authorised or registered in accordance with Directive 
2011/61/EU. 

20  The  thresholds  are  EUR  1  bn  in  gross  notional  value  for  credit  and  equity  derivatives  and 

EUR 3 billion for interest rate, foreign exchange, and commodity or other derivatives. 

12 

 
 
                                                 
(80% of global outstanding derivatives)21, and OTC credit derivatives (representing 2.2% 
of global outstanding derivatives)22. Annex 5 provides further details. 

Today, the central clearing determination covering OTC interest rate swaps (IRS) related 
to  the  Euro,  the  USD,  the  Yen,  and  the  British  Pound  has  started  to  apply  to  clearing 
members  (as  of  21  June  2016)  and  financial  counterparties  above  the  EUR  8  billion 
threshold (as of 21 December 2016). For other IRS in European currencies (Norwegian 
Krone,  Polish  Zloty,  and  Swedish  Krona)  and  Credit  Default  Swaps  (CDS),  the 
application  has  started  phasing-in  as  of  February  2017  for  clearing  members.  The 
detailed compliance deadlines for the central clearing determination applying to various 
asset classes and to different types of counterparties are summarised in Annex 2A. 

2.3.3.  Risk-mitigation techniques for uncleared OTC derivative contracts 

Risk-mitigation techniques (RMT) refer to mechanisms that aim to reduce counterparty 
credit risk for uncleared OTC derivative transactions, i.e. transactions that are not cleared 
through  a  CCP,  but  traded  bilaterally.  RMT  can  include  operational  obligations  on  the 
procedures  applying  to  bilateral  transactions  (e.g.  timely  confirmation  of  a  trade, 
portfolio compression, portfolio reconciliation, and daily valuation). RMT can also refer 
to  requirements  that  counterparties  exchange  collateral  (margins)  when  entering  into  a 
bilateral transaction in order to protect counterparties from the risk of a potential default 
of the other counterparty. 

Rules on risk-mitigation techniques for OTC derivative contracts not cleared by a CCP 
started  to  phase-in  in  2013.  All  uncleared  derivatives  are  subject  to  requirements  on 
timely  confirmation,  portfolio  reconciliation,  portfolio  compression,  dispute  resolution 
and  daily  valuation  requirements  (above  a  certain  portfolio  size  threshold).  The 
requirements  are  in  line  with  international  standards  developed  by  the  International 
Organization  of  Securities  Commissions  (IOSCO),  prepared  in  consultation  with  the 
Basel Committee on Banking Supervision (BCBS) and the Committee on Payments and 
Market Infrastructures (CPMI) and finalised in January 201523.  

In  addition  to  operational  risk-mitigation  techniques,  the  Commission  adopted  new 
regulatory  technical  standards  on  margin  requirements24  in  October  2016  to  further 
mitigate risk in bilateral clearing and strengthen the incentive to move to central clearing, 
based  on  criteria  set  out  in  EMIR.  These  requirements  follow  international  standards 
developed by the BCBS and IOSCO.  

The  scope  of  the  margin  requirements  reflects  the  one  of  the  clearing  obligation  and 
applies  to  all  financial  counterparties  and  'NFC+'.  The  margin  rules  require  them  to 
exchange two types of collateral in the form of margins. The first type is variation margin 
(VM),  which  is  exchanged  on  a  frequent  basis  and  protects  counterparties  against 
exposures  related  to  the  current  market  value  of  their  OTC  derivative  contracts.  The 
second  type  is  initial  margin  (IM),  which  is  posted  at  the  initiation  of  a  transaction  to 
cover future exposures that could arise from losses on the counterparty’s position after it 
has  defaulted.  The  initial  margin  requirement  applies  to  financial  counterparties  and 
NFC+ above a threshold of EUR 8bn in gross notional amounts of outstanding contracts. 

21  OTC derivatives statistics at end-June 2016, Statistical release, BIS, November 2016, p. 5. 
22  OTC derivatives statistics at end-June 2016, Statistical release, BIS, November 2016. 
23   IOSCO (2015), Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives, January. 
24   Commission Delegated Regulation (EU) 2016/2251 of 4 October 2016, OJ L 340, 15.12.2016, p. 9–46. 

13 

 
 
                                                 
The entry into application of the requirements follows a phase-in schedule, starting on 4 
February 2017 for clearing members and as of 1 March 2017 for other counterparties.  

2.3.4. 

Cross-border arrangements 

In  light  of  the  global  nature  of  the  OTC  derivatives  market,  the  FSB  encourages 
jurisdictions  that  have  implemented  the  G20  commitments  to  provide  some  capacity  to 
defer in  some  way to  other  jurisdictions. This aims to  promote  safer  cross-border OTC 
derivative transactions and to avoid regulatory arbitrage.  

EMIR provides a mechanism for recognising CCPs and trade repositories based outside 
of  the  EU.  Once  recognised,  EU  and  non-EU  counterparties  may  use  a  non  EU-based 
CCP  to  meet  their  clearing  obligations  and  a  non  EU-based  trade  repository  to  report 
their  transactions  to.  EMIR  also  empowers  the  Commission  to  adopt  equivalence 
decisions for other areas of EMIR, such as reporting, margins for uncleared derivatives 
and risk mitigation techniques. 

2.4.  EMIR and the implementation of the G20 OTC derivatives reforms 

The  FSB  regularly  monitors  the  implementation  in  its  24  member  jurisdictions  of  the 
OTC derivatives reforms agreed by the G20 in 2009.  

In  its  latest  progress  report  published  in  August  201625,  the  FSB  highlights  that,  as  of 
end-June 2016, the EU had implemented all of the G20 OTC derivatives reforms, except 
margin  requirements  for  non-centrally  cleared  derivatives.  Since  the  publication  of  the 
FSB progress report however, the EU adopted on 4 October 2016 regulatory standards on 
margin requirements for uncleared derivatives. This means that the EU has completed the 
implementation  of  the  G20  OTC  derivatives  reforms  with  regard  to  trade  reporting, 
central clearing and margin requirements. 

The FSB is currently focussing on assessing the effects of the OTC derivatives reforms in 
its 24 member jurisdictions. It is preparing a comprehensive review of the reforms that 
will feed into the 3rd annual report to the Leaders of the G20, ahead of the G20 summit 
scheduled for July 2017 in Hamburg under the aegis of the German Presidency. 

In  the  EU,  several  authorities  have  issued  publications  assessing  the  progress  in 
delivering on the objectives of EMIR. The ECB published an article in December 2016 
concluding  that,  while  gaps  remain,  'considerable  progress  has  been  made  in  making 
OTC  derivatives  markets  more  transparent  and  resilient'26.  The  ESRB  published  a 
research paper in September 2016 on 'Shedding light on dark markets: First insights from 
the  new  EU-wide  OTC  derivatives  dataset'27,  focusing  on  EMIR's  objective  to  increase 
transparency in the OTC derivatives market. The paper notes that, 'since the advent of the 
EMIR reporting obligation in February 2014, data quality has significantly improved'.  

The evaluation presented in Annex 5 concludes that, following the implementation of the 
core requirements of EMIR, the volume of reported trades has increased. In particular, a 

25   FSB OTC Derivatives  Market Reforms  -  11th  progress  report, August 2016.  http://www.fsb.org/wp-

26  

content/uploads/OTC-Derivatives-Market-Reforms-Eleventh-Progress-Report.pdf  
'Looking back at OTC derivative reforms – objectives, progress and gaps', ECB, 20 December 2016, p. 
22. 

27   European Systemic Risk Board, Occasional Paper Series No11/September 2016 

14 

 
 
                                                 
substantial share of new OTC derivative transactions (80–100% of new transactions in all 
asset classes) is estimated to be covered by reporting requirements. 

In addition, the evaluation highlights that a substantial share of OTC derivatives is now 
centrally  cleared.  As  of  end-June  2016,  on  average  62%  of  the  $544  trillion  in 
outstanding notional amounts reported by dealers was centrally cleared by CCPs across 
all  types  of  derivative  contracts28.  In  terms  of  notional  amounts,  without  adjusting  for 
double  counting  arising  from  novation,  BIS  estimated  that  the  volume  of  cleared  OTC 
transactions at the end of June 2016 totalled USD 337.28 trillion, of which USD 328.5 
trillion  was  attributable  to  interest  rate  derivatives  and  USD  4  trillion  to  credit  OTC 
derivatives. 

2.5.  Consistency with other EU policies 

29303132he  Commission's  proposal  for  a  framework  for  the  recovery  and  resolution  of 
CCPs33 aims to ensure that, in the unlikely scenario where CCPs face severe distress or 
failure, the critical functions of CCPs are preserved while maintaining financial stability 
and  helping  to  avoid  that  costs  associated  with  the  restructuring  and  the  resolution  of 
failing  CCPs  fall  on  taxpayers.The  Commission'  proposal  on  the  amendment  of  the 
CRR34  

EMIR is also related to the ongoing efforts to establish Capital Markets Union ('CMU'). 
Efficient and resilient post-trading systems and collateral markets are essential elements 
for  the  well-functioning  of  CMU.  Therefore,  effective  and  efficient  EMIR  rules 
contribute to achieving the objectives of CMU and of the Jobs and Growth agenda in line 
with the political priorities of the Commission. 

The  impact  assessment  has  considered  the  implications  of  targeted  amendments  to 
specific EMIR rules on these pieces of EU legislation and on the broader Commission's 
political  priorities.  Likewise,  the  impact  assessment  takes  into  account,  to  the  extent 
possible,  the  expected  impact  of  the  Commission's  proposals  on  CCP  recovery  and 
Resolution and on the amendment of the CRR on EMIR, as part of a holistic approach. 

28  BIS, Statistical release, OTC derivatives statistics at end-June 2016, November 2016. 
29  Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in 
financial  instruments  and  amending  Directive  2002/92/EC  and  Directive  2011/61/EU,  (OJ  L  173, 
12.6.2014, p. 349) 

30  Regulation  (EU)  No  600/2014  of  the  European  Parliament  and  of  the  Council  of  15  May  2014  on 
markets in financial instruments and amending Regulation (EU) No 648/2012, (OJ L 173, 12.6.2014, 
p. 84)  

31  Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  on  a  framework  for  the 
recovery and resolution of central counterparties and amending Regulations (EU) No 1095/2010, (EU) 
No 648/2012, and (EU) 2015/2365, COM(2016) 856 final 

32  Regulation  (EU)  no  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on 

prudential requirements for credit institutions and investment firms 

33  COM(2016) 856 final. 
34   Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 
No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and 
eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures 
to  collective  investment  undertakings,  large  exposures,  reporting  and  disclosure  requirements  and 
amending Regulation (EU) No 648/2012. 

15 

 
 
 
                                                 
3.  PROBLEM DEFINITION 

This section outlines why the scope of the problems identified in the impact assessment 
is  limited,  identifies  limitations  when  defining  the  magnitude  of  the  problems,  and 
explains how the problems have been selected and why targeted action is necessary.  

The problems identified in this section draw on the outcome of the evaluation carried out 
in  Annex  5.  Those  problems  include:  (1)  Disproportionate  compliance  costs;  (2) 
Insufficient transparency; and (3) Access to clearing. 

3.1.  Methodology 

3.1.1.  Selection of relevant issues for the definition of the problems 

The main problems and  shortcomings assessed in this impact assessment concern areas 
where  the  evaluation  carried  out  in  Annex  5,  as  well  as  input  received  from  various 
authorities and stakeholders as presented in the EMIR report of November 2016, indicate 
that  targeted action  is  necessary to  ensure fulfilment of the  EMIR objectives  in  a more 
proportionate, efficient and effective manner. 

More  specifically,  the  impact  assessment  considers  the  costs  and  benefits  of  targeted 
amendments of specific EMIR rules, including those applying to central clearing and to 
reporting.  While  the  definition  of  the  problems  is  targeted,  the  impact  assessment 
considers the cumulative impact of targeted changes as presented in section 5. 

The  key  element  to  consider  is  that,  while  the  implementation  of  EMIR  can  now  be 
considered  as  complete  by  FSB  standards,  the  application  of  EMIR  remains  work  in 
progress  five  years  after  its  adoption.  Certain  core  EMIR  requirements  (including 
clearing obligations and bilateral margin requirements) are  yet to enter into application. 
This has a number of consequences on the availability of data on the costs and benefits of 
EMIR requirements. 

First,  while  it  is  not  possible  to  consider  the  impact  of  EMIR  in  its  entirety,  feedback 
from  stakeholders  and  public  authorities  collected  during  the  2015-2016  public 
consultations,  the  evaluation  of  EMIR  in  Annex  5,  and  international  monitoring  of  the 
G20 OTC derivatives market reforms all indicate that EMIR has positively contributed to 
promote  transparency  in  derivatives  market  and  mitigate  systemic  risk  through  its  core 
requirements. Therefore, no fundamental change should be made to the nature of the core 
requirements  of  EMIR,  which  are  integral  to  ensuring  transparency  and  mitigating 
systemic risks in the derivatives market. 

Second, the recent  application of certain requirements and the absence of failure in the 
application  of  the  relevant  international  standards  caution  against  the  introduction  of 
significant  changes  to  EMIR.  This  explains  why  a  number  of  issues  raised  by  public 
authorities and stakeholders (see Annex 4 for more detail) are not covered in this impact 
assessment. For instance, assessing the need to define greater intervention capacity in the 
area of margin efficiency to limit procyclicality would be premature in light of the recent 
application  of  existing  margin  and  anti-procyclicality  requirements35  and  the  lack  of 

35   See ESRB Report on the efficiency of margining requirements to limit pro-cyclicality and the need to 
define additional intervention capacity in this area, July 2015, and ESMA's EMIR Review Report no.2 
- Review on the efficiency of margining requirements to limit procyclicality. 

16 

 
 
                                                 
evidence concerning any failure in margin rules being at the level of central clearing or 
bilateral  margining36.  Other  issues  raised  by  stakeholders  and  authorities,  such  as  the 
functioning of the supervisory framework for CCPs or cross-border activity, require to be 
further examined by European authorities at horizontal level as the overall EU financial 
services  supervisory  infrastructure  and  the  third-country  framework  is  based  on  an 
horizontal Union approach. 

Third,  under  the  REFIT  framework,  priority  has  been  given  to  issues  where  targeted 
action could help alleviate existing burdens without compromising EMIR's objective to 
increase  financial  stability.  For  instance,  the  recalibration  of  reporting  requirements 
applying  to  certain  entities  could  lead  to  a  reduction  of  compliance  costs,  while  the 
simplification of reporting requirements could help increase the transparency of the OTC 
derivatives market more efficiently, without putting financial stability at risk. Priority is 
also  given  to  requirements  where  targeted  amendments  could  help  either  pre-empt 
significant burdens for specific counterparties or avoid the build-in of risks for financial 
stability.  This  concerns the impact  that the central  clearing obligation  for  PSAs,  due  to 
apply in August 2018, could have on the revenue income of policy holders and on market 
liquidity. This also includes the expected burdens from the upcoming application of the 
clearing obligation to NFCs and small financials, as well as the deadline for backloading 
historic trades which expire in February 2019, according to the recently adopted revised 
implementing technical standard on trade reporting37. 

3.1.2.  Limitations when defining the magnitude of the problems 

It is important to bear in mind the following limitations when defining the magnitude of 
the problems.  

First,  the  phased-in  application  of  EMIR  core  requirements  means  that  there  is  only  a 
limited  amount  of  evidence  available  on  the  impact  of  the  application of  the  rules.  For 
example,  in  the  specific  instance  of  margin  requirements,  there  is  no  data  available,  as 
margins rules have only recently started to phase-in since February 2017.  

Second,  while  the  Commission  has  received  qualitative  input  and  anecdotal  evidence 
from market participants and stakeholders on the impact, as well as the expected impact, 
of  core  EMIR  requirements,  limited  quantitative  data  is  available  to  measure  costs  for 
market  participants  (such  as  the  IT  costs  associated  with  the  EMIR  reporting 
requirements). This is for a number of reasons, including because: (i) EMIR was the first 
regulation seeking to increase transparency in the OTC derivatives market, (ii) the market 
for  OTC  derivatives  is  global  and  highly  interconnected,  limiting  the  relevance  of  EU-
focused data, and (iii) there are concerns with regards to the quality and the usability of 
the  data  collected  via  the  EMIR  reporting  requirement,  which  this  impact  assessment 
considers. Addressing the identified reporting issues will help to improve the availability 
and quality of data, which can then be used for monitoring the future impact of EMIR. 

Third,  it  is  difficult  to  quantify  financial  stability  as  there  is  still  no  agreed  model  for 
measuring  the  concept.  The  assessment  of  the  extent  to  which  specific  EMIR 
requirements have reduced systemic risk raises methodological challenges. These come 

36   For  further  reading  on  a  related  topic,  see  ESRB  report  on  the  macroprudential  use  of  margins  and 

haircuts, February 2017.  

37   Commission  Delegated  Regulation  (EU)  of  19.10.2016,  C(2016)  6624  final,  and  Commission 

Implementing Regulation (EU) of 26.10.2016, C(2016) 6801 final.   

17 

 
 
                                                 
on top of the data issues mentioned before. The nature of EMIR data requires new tools 
and  innovation  in  the  field  of  network  analysis,  statistical  physics  and  certain 
mathematical  concepts.  How  to  assess  systemic  risk  using  transaction-based  reporting 
data is an active and open field of research. 

With these limitations in mind, the definition of the magnitude of the problem draws on 
the data collected by ESMA, ESRB, ESCB, responses to the public consultations, where 
stakeholders and authorities have provided evidence regarding the problems at stake, and 
targeted  market  intelligence.  It  also  draws  on  data  relating  to  other  EU  measures  that 
establish similar requirements to EMIR. For example,  based on preliminary, non-public 
findings in the Commission project on financial data standardisation38, it seems that the 
EMIR reporting requirements may be at least as burdensome39 as reporting requirements 
under  CRR/CRD  IV.  In  relation  to  the  latter,  the  Commission  has  assessed  the 
proportionality of the reporting burden in a 2009 study and found that smaller reporting 
entities  are  strongly  disproportionally  impacted  by  compliance  cost  related  to  reporting 
obligations.  

Where there is no data available at EU level, the impact assessment draws on evidence 
provided  by  the  Financial  Stability  Board  (FSB)  and  the  Bank  of  International 
Settlements  (BIS)  stemming  from  the  monitoring  of  the  G20  reforms  of  the  OTC 
derivatives  reform.  While  such  evidence  is  useful  because  of  the  global  nature  of  the 
OTC  derivatives  market  and  the  comparability  of  certain  rules  in  other  jurisdictions,  it 
should,  however,  be  noted  that  the  participant  scope  of  mandatory  central  clearing 
requirements  in  EMIR  is  farther-reaching  than  in  the  legal  and  regulatory  frameworks 
adopted in other jurisdictions.40 

3.1.3.  The relevance of the network structure when defining the magnitude 
of the problems 

When defining the magnitude of the problems, it is also necessary to consider the relative 
systemic risk profile of the counterparties covered by EMIR. Two aspects can help in that 
process: i) the size of the portfolio of OTC derivatives entered into by a counterparty and 
ii) the degree of 'interconnectedness' of a counterparty with other counterparties. On the 
second  point,  it  is  useful  to  take  into  account  the  network  structure  of  the  OTC 
derivatives  market  because  there  are  some  indications  that  market  participants  at  the 
periphery  of  the  market  seem  to  present  a  relatively  lower  systemic  risk  for  financial 
stability. 

Figure  1  below  provides  a  sense  of  the  relative  share  of  various  market  participants  in 
cleared OTC derivative contracts, on the basis of an analysis carried out by the ESRB. It 
highlights  that  'G16  dealers'41,  which  include  mainly  clearing  members,  represent  a 

38  See  Communication  from  the  Commission  on  the  Call  for  Evidence  -  EU  regulatory  framework  for 

financial services, COM/2016/0855 of 23.11.2016, and the related Staff Working Document. 
http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1481281099294&uri=CELEX:52016DC0855    
39  EMIR, if anything, exhibits a similar, or stronger, non-linear cost structure with respect to the size of 

the reporting entity.  

40  C.f.  FSB,  OTC  Derivatives  Market  Reforms  -  Eleventh  Progress  Report  on  Implementation, 
I,  http://www.fsb.org/wp-content/uploads/OTC-Derivatives-Market-

26 August 2016,  Appendix 
Reforms-Eleventh-Progress-Report.pdf.  

41  This chart includes only trades which are centrally cleared. The group of G16 dealers includes Bank of 
America, Barclays, BNP Paribas, Citigroup, Crédit Agricole, Credit Suisse, Deutsche Bank, Goldman 

18 

 
 
                                                 
 
 
substantial  share  of this  market, followed by banks. By comparison,  other financials  as 
well as non-financial counterparties, represent a smaller share.  

Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Nomura, Royal Bank of Scotland, Société Générale, 
UBS, and Wells Fargo. 

19 

 
 
 
 
 
 
 
 
 
                                                                                                                                                 
Figure 1 – Share of total notional of centrally cleared contracts by type of market 
participant  (DTCC  OTC  interest  rate  derivatives  dataset,  based  on  the  02/11/15 
trade state report)   

Source: European Systemic Risk Board, Occasional Paper Series No11/September 2016 

The ESRB has also illustrated in a recent paper published in September 2016 the network 
structure  of  the  market  through  the  visualisation  of  the  outstanding  bilateral  IRS 
positions.  This  provides  a  sense  of  “who  trades  with  whom"  and  of  the  degree  of 
interconnectedness between market participants active in the IRS market. 

Figure 2 below illustrates that CCPs, clearing members (referred to as G16 dealers), and 
banks,  which  appear  in  the  core  of  the  chart,  are  connected  to  a  large  number  of 
counterparties,  with  many  connections  between  them,  suggesting  a  high  degree  of 
systemic  risk.  By  contrast,  counterparties  in  the  periphery,  including  NFCs  and  other 
financials,  tend  to  be  connected  to  only  one  intermediary,  suggesting  limited  systemic 
risk. 

20 

 
 
 
 
 
 
 
 
 
 
 
Figure 2 Network of gross notional links between counterparties in a subset of the 
interest rate swap (IRS) market 

Source: Jorge Abad, Jorge Abad, Iñaki Aldasoro, Christoph Aymanns, Marco D’Errico, 
Linda Fache Rousová, Peter Hoffmann, Sam Langfield, Martin Neychev, Tarik Roukny, 
Shedding  light  on  dark  markets:  First  insights  from  the  new  EU-wide  OTC  derivatives 
dataset, ESRB, Occasional Paper Series No 11, September 2016, p. 18. 

3.2.  Disproportionate prudential and transparency requirements 

Stakeholders have highlighted a number of cases where the rules set out in EMIR may 
impose compliance costs on certain market participants that outweigh prudential benefits. 
These concern: (i) the scope of entities subject to the requirements set out in EMIR; and 
(ii) the scope of transactions covered by reporting requirements.. 

3.2.1.  Mandatory clearing and risk-mitigation techniques  

This section assesses the application of the mandatory clearing and margin requirements 
to  the  following  counterparties:  (1)  Pension  Scheme  Arrangements;  (2)  Non-Financial 
Counterparties (NFCs); and (3) small financials, hereafter referred to as Small Financial 
Counterparties (SFCs). 

21 

 
 
 
Table  1  below  provides  a  summary  of  the  scope  of  the  clearing  and  bilateral  margin 
requirements in EMIR, as described in section 2: 

Table 1: Scope of EMIR clearing and margin requirements 

PSAs 

NFC+  

NFCs- 

FC 
(including 
SFCs) 

Clearing obligation  Yes 

Transitional 
exemption 

 Yes 

No 

Operational risk-
mitigation 
techniques for 
uncleared OTC 
derivatives 

Variation Margin 
requirements 

Initial Margin 
requirements  
(when OTC 
derivatives 
uncleared activities 
are above EUR 8bn 
in gross notional 
outstanding 
amounts) 

Reporting of all 
derivative contracts 

Yes 

Yes 

Yes 

Yes  

(except 
daily 
valuation) 

Yes 

Yes  

Yes 

No 

Yes 

Yes  

Yes 

No 

Yes 

Yes 

Yes 

Yes 

(including 
backloading, 
ETDs, 
IGTs 
and  double-
sided 
reporting)  

(including 
backloading, 
ETDs, 
IGTs 
and  double-
sided 
reporting)   

(including 
backloading, 
ETDs,  IGTs 
and  double-
sided 
reporting)   

(including 
backloading, 
ETDs,  IGTs 
and  double-
sided 
reporting)   

3.2.1.1.  Pension Scheme Arrangements ('PSAs')   
Pension  Scheme  Arrangements42  typically  enter  into  derivative  transactions  to  protect 
their long-term liabilities to current and future pensioners against complex market risks 

42  PSAs  are  defined  in  Article  2(10)  of  EMIR  as:  "Institutions  for  occupational  retirement  provision 
under Article 6(a) of Directive 2003/41/EC; Occupational retirement provision businesses as defined 
under Article 3 of Directive 2003/41/EC; Occupational retirement provision businesses of life insurers 
covered by Directive 2002/83/EC; and Any other authorised and supervised entity operating nationally 
whose main objective is to provide retirement benefits". 

22 

 
 
  
 
 
 
  
  
 
                                                 
(including interest rate and inflation volatility). PSAs therefore tend to have a preference 
for derivatives with longer maturities than other counterparties. Figure 3 below illustrates 
that PSAs, together with insurers, are disproportionately extensive users of Interest Rate 
Derivatives (IRS) with original maturities of 20, 40 and 50 years. Indeed, about 20% of 
IRSs with at least one counterparty as an insurer or pension fund have a maturity of 30 
years, compared with a global average of less than 10%43. This also reflects the specific 
mandates governing the investment management and risk taking of PSAs, as compared to 
other financial counterparties. 

Figure  3.  Frequency  distribution  of  original  maturity  across  counterparty  type44 
(DTCC OTC interest rate derivatives dataset based on the 02/11/15 trade state report) 

Source: European Systemic Risk Board, Occasional Paper Series No11/September 2016 

As significant users of derivatives, PSAs are subject to several EMIR requirements that 
aim  to  mitigate  related  systemic  risks,  including  the  obligation  to  report  trades  and  to 
mitigate counterparty risk in non-centrally cleared OTC derivatives.  

However,  EMIR  recognises  that  PSAs  have  structural  difficulties  in  clearing  OTC 
derivatives  through  CCPs,  as  CCPs  tend  to  accept  only  cash  collateral  for  variation 
margin (VM), which allows for a rapid liquidation in the event of a default. The results of 
the  latest  available  Margin  Survey  of  the  International  Swaps  and  Derivatives 
Association  ('ISDA')45  highlights  the  dominance  of  cash,  which  accounts  for  99.4%  of 
the amount delivered to meet variation margin against cleared derivative transactions in 
House Trades and 100% in client clearing (as of December 2014). 

PSAs generally hold limited amounts of cash, as they invest in higher yielding assets to 
enhance returns for pensioners.  PSAs mainly hold cash for the purpose of provisioning 
for cash-flows within the schemes themselves (see Figure 4). 

43  ESRB, Occasional Paper Series No11/ September 2016, Shedding light on dark markets: First insights 
from  the  new  EU-wide  OTC  derivatives  dataset,  p.  14.  The  group  of  G16  dealers  includes  Bank  of 
America, Barclays, BNP Paribas, Citigroup, Crédit Agricole, Credit Suisse, Deutsche Bank, Goldman 
Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Nomura, Royal Bank of Scotland, Société Générale, 
UBS, and Wells Fargo. 

44   The  horizontal  axis  represents  maturities,  while  the  vertical  axis  represents  the  proportion  of  IRSs 
involving at least one of the counterparties considered in each of the charts (e.g. insurance and pension 
funds).  
ISDA Margin Survey 2015, August 2015. 

45 

23 

 
 
 
                                                 
Figure  4.  Pension  fund  asset  allocation  in  selected  OECD  countries,  2015  (as  a 
percentage of total investment) 

Source: OECD Global Pension Statistics, October 2016 

If PSAs were to reduce their holdings of non-cash assets in order to meet cash collateral 
requirements this would have a detrimental impact on future pension benefits. Recital 26 
of  EMIR  acknowledges  this  risk,  which  a  baseline  study  prepared  for  the  Commission 
also highlighted in 2014.46 According to the modelling in this study, which assumed that 
PSAs would create a cash buffer of between 80% and 100% of the maximum expected 
variation  margin  call  under  a  100  basis  points  increase  in  interest  rates,  the  aggregate 
variation  margin  call  would  be  EUR  204–255  billion  for  EU  PSAs  (see  table  below). 
This compares to the estimated annual cost of the current bilateral arrangements of about 
EUR  43  million,  and  of  EMIR  (with  the  exemption)  of  EUR  52  million.  The  baseline 
study estimated the cumulated reduction in the retirement income of future pensioners to 
be a up to 3.66% across the EU over 40 years47. 

46  Europe  Economics  and  Bourse  Consult,  Baseline  report  on  solutions  for  the  posting  of  non-cash 

collateral to central counterparties by pension scheme arrangements, p. 10 – 25, July 2014. 
Ibid, p. 68. 

47 

24 

 
 
 
 
                                                 
Figure  5.  Total  annual  costs  of  PSAs  posting  cash  variation  margin  (without  the 
exemption) 

Source: Europe Economics and Bourse Consult study, July 2014 

Furthermore, in response to the Commission's Call for Evidence, one industry association 
gave  an  example  of  a  large  German  pension  fund  with  more  than  EUR  10bn  in  assets 
under management that would have had to hold between 0.5% and 1.0% of total assets in 
cash in the last 5 to 10 years to meet the variation margin call related to central clearing 
instead of investing this amount in higher-yielding assets.48  

The FSB also highlighted in a recent report that requirements to post cash for variation 
margin represent a challenge for counterparties that do not hold much cash, such as some 
pension funds49. 

Taking  into  account  these  difficulties,  Article  89(1)  of  EMIR  provides  a  temporary 
clearing  exemption  for  PSAs  meeting  certain  conditions50.  There  are  approximately 
15000 PSAs benefiting from the clearing exemption in the EU. Nearly all the PSAs are 
institutions  for  occupational  retirement  provision  as  defined  under  Article  2(10)(a)  and 
(b)  of  EMIR,  which  automatically  qualify  for  the  exemption.51  The  remainder  includes 
22  PSAs  referred  to  in  Article  2(10)(c)  or  (d)  of  EMIR,  which  have  been  granted  an 
exemption  by  ESMA,  as  they  encounter  difficulties  in  meeting  the  variation  margin 
requirements  in  accordance  with  Article  89(2)52.  The  PSAs  benefiting  from  the 
exemption  include  life  insurance  undertakings,53  provided  that  all  corresponding  assets 
and liabilities are ring-fenced, managed and organised separately, without any possibility 
of transfer. 

The  exemption  was  agreed  explicitly  in  order  to  provide  time  for  CCPs  to  develop 
technical  solutions  to  accept  non-cash  collateral.  As  viable  technical  solutions  failed  to 
emerge,  the  Commission,  in  accordance  with  Article  85(2)  of  EMIR,  extended  this 

48  PensionsEurope's contribution to the Call for Evidence. 
49  FSB,  OTC  Derivatives  Market  Reforms,  Eleventh  Progress  Report  on  Implementation,  26  August 

2016. 

50  Article 89(1) and (2) of EMIR. The exemption shall apply only to OTC derivatives that are objectively 
measurable as reducing investment risks directly relating to the financial solvency of pension scheme 
arrangements and where the PSA encounters difficulties in meeting the VM requirements.  

51  C.f. 

EIOPA 

public 

register 

https://eiopa.europa.eu/publications/register-of-institutions-for-

occupational-retirement-provision  

52  Data based on the list that was last updated in August 2016, available on ESMA's website at: 

https://www.esma.europa.eu/sites/default/files/library/list_of_exempted_pension_schemes.pdf. 

53  Recital (27) of EMIR highlights the need to provide for a level playing field for all PSAs. In addition 
to  institutions  for  occupational  retirement  provision  registered  in  accordance  with  Directive 
2003/41/EC,  Recital  (28)  of  EMIR  specifies  that  the  derogation  should  also  apply  to  occupational 
retirement provision businesses of life insurance undertakings.  

25 

 
 
 
                                                 
exemption  by  two  years  in  2015.  A  Commission  Report  issued  in  February  201554 
assessed the progress and effort made by CCPs in developing technical solutions for the 
transfer  by  PSAs  of  non-cash  collateral  as  variation  margin.  The  Report  fulfilled  the 
mandate set out in Article 85(2) of EMIR and was based on the baseline study referred to 
above.  The  Report  found  that  CCPs  had  not  made  sufficient  progress  in  developing 
appropriate technical solutions. Only one CCP had started developing a repurchase (repo) 
transaction clearing service that could address the needs of PSAs to use non-cash assets. 
The  Report,  however,  highlighted  that  certain  important  questions  remained,  as  to  the 
viability  of  such  a  collateral  transformation  service.  In  particular,  it  considered  that  the 
bilateral repo markets did not appear to hold sufficient liquidity to withstand the needs of 
PSAs in  stressed  scenarios. Based  on an analysis of the EU  government  bond  markets, 
the  baseline  study  underpinning  the  Report  highlighted  that  the  aggregate  variation 
margin call for a 100 basis point move (amounting to EUR 204-255 billion for EU PSAs, 
as  per  above)  would  exceed  the  apparent  daily  capacity  of  the  relevant  bilateral  repo 
markets.  Similarly,  respondents  to  the  EMIR  consultation  expressed  concerns  that  in 
stressed market scenarios, PSAs would face a substantial liquidity risk as they might not 
be able to raise enough cash to meet their variation margin calls. 

On  this  basis,  on  20  December  2016,  the  Commission  adopted  a  delegated  act55  to 
prolong  the  exemption  by  an  additional  and  final  year,  until  August  2018.  Under  the 
current  legal  framework,  the  transitional  exemption  cannot  be  further  extended. 
However,  as  indicated  by  respondents  to  the  EMIR  consultation  and  to  the  Call  for 
Evidence,  viable  CCP  clearing  solutions  for  PSAs  continue  to  be  insufficient.  Recent 
comments received during the public feedback period on the draft delegated act, which 
took place in November 2016, made a similar point. Four business associations expressed 
support  for  the  extension  by  a  further  year  of  the  clearing  exemption  for  PSAs  and 
highlighted the negative consequences of not doing so.  Therefore, there is a genuine risk 
that in August 2018 PSAs could be subject to the clearing obligation without a technical 
solution  to  post  non-cash  variation  margins,  which  would  generate  disproportionate 
damage to the returns of (future) pensioners.  

While PSAs benefit from an exemption from central clearing, they are however subject 
to bilateral margin requirements applying to uncleared OTC derivatives. The objective of 
these requirements is to mitigate the risk of a counterparty credit default in the absence of 
clearing  via  a  CCP,  as  well  as  to  provide  an  incentive  towards  central  clearing.  The 
application  of  these  requirements  will  be  phased  in  from  March  2017,  including 
requirements for PSAs' margin.56 

3.2.1.2.  Non-Financial Counterparties ('NFCs') 

The scope of clearing and bilateral margin requirements is far-reaching and includes all 
financial  counterparties  and  the  biggest  non-financial  counterparties  (NFCs).  This  is 
because EMIR intends to cover all relevant market participants in order to cover all risks 
linked to derivatives transactions. 

54  Commission Report assessing the progress and effort made by CCPs in developing technical solutions 
for  the  transfer  by  PSAs  of  non-cash  collateral  as  variation  margin,  as  well  as  the  need  for  any 
measures to facilitate such solution (COM(2015)39 final of 3.2.2015). 
55  Commission Delegated Regulation C(2016)8542 of 20 December 2016. 
56  Commission Delegated Regulation (EU) 2016/2251 of 4 October 2016, OJ L 340, 15.12.2016, p. 9–46. 

26 

 
 
                                                 
EMIR does however only aim at 'systemic' NFCs: it acknowledges that NFCs use OTC 
derivative contracts in order to cover themselves against commercial risks directly linked 
to  their  commercial  or  treasury  financing  activities.  Consequently,  in  determining 
whether an NFC should be subject to the clearing obligation, EMIR gives consideration 
to the purpose for which that NFC uses OTC derivative contracts, as well as to the size of 
the  exposures  that  it  has  in  those  instruments.57  NFCs  are  subject  to  the  clearing 
obligation  and  risk  mitigation  techniques  requirements  where  their  positions  in  non-
hedging  OTC  derivatives  exceed  certain  thresholds  defined  in  a  regulatory  technical 
standard.  The  thresholds  are  EUR 1 bn  in  gross  notional  value  for  credit  and  equity 
derivatives  and  EUR 3 bn  for  interest  rate,  foreign  exchange,  and  commodity  or  other 
derivatives58.  Once  an  NFC  surpasses  one  of  these  thresholds  in  any  asset  class,  it 
becomes  subject  to  these  requirements  across  all  asset  classes.  These  NFCs  are 
commonly  referred  to  as  'NFC+'  as  opposed  to  NFCs  below  the  threshold  which  are 
known as 'NFC-'. 

The public consultations identified several problems in applying the EMIR requirements 
to  NFCs.  First,  significant  problems  emerged  in  relation  to  the  application  of  the 
hedging/non-hedging  distinction.  NFCs  pointed  out  the  difficulty  of  classifying 
transactions as 'hedging' or not, as the definition of hedging is not in line with accounting 
rules  and  differs  in  their  interpretation  between  regulators.  These  problems  were  also 
confirmed  by  ESMA,59  which  concluded  that  many  NFCs  do  not  seem  to  apply  the 
hedging/non-hedging  distinction  because  many  counterparties  classify  100%  of  their 
trades  either  as  hedging  or  as  non-hedging.  Those  counterparties  have  not  developed 
systems  to  monitor  the  hedging  or  non-hedging  nature  of  their  transactions.60  These 
systems generate compliance costs. ESMA estimated at EUR 50 000 on-off plus EUR 40 
000 on-going per year and per counterparty to monitor trades61. However, as a result of 
diverging  regulatory  practices  and  application  of  the  hedging  definition,  NFCs  that 
undertake similar activities and which hold comparable OTC derivative portfolios end-up 
qualifying  either  above  or  below  the  threshold,  leading  to  an  unlevelled  playing  field. 
Some industry participants and authorities also drew attention to the difficulty for market 
participants to determine which of their non-financial counterparties are above or below 
the clearing threshold.  

More  generally,  NFCs  also  highlighted  the  operational  challenges  with  EMIR 
requirements and stated that the transaction costs associated with OTC derivative trading, 
whether hedging or not, had increased. Due to a sizeable cost increase for non-centrally 
cleared  transactions,62  they  argue  that  EMIR  has  reduced  incentives  to  engage  in 

57  See Article 10 of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 

July 2012 on OTC derivatives, central counterparties and trade repositories. 

58  http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:052:0011:0024:EN:PDF  
59  https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1251_-

_emir_review_report_no.1_on_non_financial_firms.pdf 

60  ESMA,  EMIR  Review  report  n°1  –  Review  on  the  use  of  OTC  derivatives  by  non-financial 
https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1251_-

counterparties, 
_emir_review_report_no.1_on_non_financial_firms.pdf.  

61  See impact assessment accompanying the draft RTS on EMIR submitted by ESMA to the European 

Commission on 27 September 2012 (ESMA/2012/600 Annex VIII). 

62  Deloitte  estimated  the  annual  cost  of  OTC  derivatives  reform  at  EUR 15.5 billion  annually 
(EUR 2.5 billion  for  centrally cleared  transactions  and  EUR 13 billion for  OTC  transactions),  but no 
taken  up  by  NFCs.  See 
detail 
https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/financial-services/deloitte-uk-fs-otc-
derivatives-april-14.pdf. 

is  provided 

share  of 

estimate 

costs 

the 

for 

27 

 
 
                                                 
derivative transactions, including hedging transactions. In particular, some NFCs pointed 
out the lack of available cash and eligible collateral to cover their derivatives activities in 
line with EMIR rules. Non-financial counterparties that are active in derivatives markets 
are  numerous  (64  295),  and  represent  72%  of  all  counterparties.63  However,  it  is 
important to contrast the number of NFCs active in derivatives markets with the volume 
of  their  OTC  derivative  positions  and  their  degree  of  interconnectedness  in  order  to 
appreciate the risks NFCs may pose for financial stability.  

According to ESMA data, only 2% of the notional value of the OTC derivatives markets 
is made up of NFC activity. This accounts for EUR 9.5 trillion outstanding volumes as 
measured  by  notional  amount  out  of  a  grand  total  of  EUR  608  trillion,  including  both 
financial counterparties and non-financial counterparties64. ESMA also indicates that on 
average, NFCs have portfolios of around 30 trades, representing EUR 150mn of notional. 
This compares to portfolios of 1,000 trades representing EUR 25,000mn of notional for 
financial counterparties. Therefore, the positions of NFCs in the OTC derivatives market 
appear  to  be  very  limited  when  compared  to  the  group  of  financial  counterparties.  In 
addition, NFCs tend to transact with less than 6 other market participants, which suggests 
not only a lack of interconnectedness across the system, as far as NFCs are involved, but 
also a lower level of risk than financial counterparties' risk (as the latter hold much larger 
volumes  of  derivatives  and  have  a  far  higher  level  of  interconnectedness).  This  lower 
degree  of  interconnectedness  can  be  illustrated  by  Figure  2  in  section  3.1.3,  which 
provides  a  picture  of  the  network  structure  of  the  OTC  derivatives  market  in  the  IRS 
segment.  It  highlights  that  non-financials  generally  tend  to  sit  at  the  periphery  of  the 
market,  while  CCPs,  clearing  members  and  banks  appear  at  the  core,  with  many 
connections  between  them.  This  shows  that  non-financial  counterparties  present  a 
relatively lower systemic risk for financial stability. 

There  is  also  a  need  to  consider  the  distribution  of  OTC  derivative  positions  within 
NFCs, in order to provide a more nuanced approach of the risk profile of non-financials. 
When it comes to NFCs subject to clearing and margin requirements (or NFC+), ESMA 
identifies  43  groups  corresponding  to  the  definition  of  NFC+,  which  include  424 
counterparties65. While the number of groups is limited, ESMA indicates that, as an order 
of  magnitude,  the  typical  portfolio  size  of  a  group  of  NFC+  is  about  five  times  bigger 
than the average portfolio of FCs in terms of trade count and 1.5 times bigger in terms of 
notional  amount.  Nevertheless,  when  considering  the  relative  share  of  their  OTC 
derivatives positions, these NFCs+ represent a notional value of 16% of NFCs notional 
amount,  which  is  equivalent  to  0.32%  of  the  total  notional  amount.  The  systemic 
relevance of most of the NFCs is therefore very limited. ESMA concluded that the only 
asset classes in which NFCs may have some systemic relevance, measured as the number 
of  contracts  (trade  counts)  or  as  the  number  of  counterparties,  are  the  commodity  and 
other66 asset classes and the FX asset classes.67 

63  ESMA,  EMIR  Review  report  n°1  –  Review  of  the  use  of  OTC  derivatives  by  non-financial 
https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1251_-

counterparties, 
_emir_review_report_no.1_on_non_financial_firms.pdf.  

64   Ibid, Table 2, p. 8. 
65 
Ibid, Table 6, p. 11. 
66 
In  its  analysis  ESMA  commingled  the  data  for  “Commodity  Derivatives”  with  that  for  “Other 
Derivatives”. 

67  https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1251_-

_emir_review_report_no.1_on_non_financial_firms.pdf, p. 17. 

28 

 
 
                                                 
Concerning the impact of other regulatory developments, the MiFID II framework aims 
at  reclassifying  large  non-financial  commodities  traders  as  financial  counterparties. 
MiFID  II68  puts  in  place  an  'ancillary  activity  test'  that  determines  how  much  non-
hedging (or speculative) commodity derivative or emission allowances derivative trading 
non-financial firms can conduct before this activity is no longer deemed 'ancillary to the 
main business' of the  firm and the firm be obliged to seek a MiFID authorisation. Two 
thresholds will be used in MiFID: one based on the value of contracts traded by the firm 
as a percentage of the overall EU market size for that commodity derivative or emission 
allowance  derivative,  and  one  based  on  whether  commodity  derivative  or  emission 
allowance derivatives make up more than 10% of the firm's business. Hence the largest 
NFCs  active  on  commodity  derivative  or  emission  allowance  derivative  markets  will 
need  to  seek  a  MiFID  authorisation.  This  development  will  lead  the  largest  NFCs  to 
being subject to the clearing obligation under EMIR, limiting EMIR clearing thresholds 
to  a  residual  tool  for  picking  up  'systemic'  NFCs.  However,  it  should  be  noted  that  the 
MiFID  thresholds  operate  differently  from  the  EMIR  ones  in  two  important  respects: 
first, both MiFID thresholds are percentage-based, rather than absolute numerical values 
as in the case of EMIR. Second, they only apply to commodity derivatives and emission 
allowances derivatives (for which, as noted above, the EMIR threshold is EUR 3 billion). 

Furthermore,  according  to  the  FSB  report  on  OTC  Derivatives  Market  Reforms  - 
Eleventh Progress Report on Implementation of August 2016, the EMIR scope is much 
broader  than  the  scope  of  OTC  derivatives  regulations  in  the  majority  of  non-EU 
jurisdictions. NFCs are not subject to mandatory clearing in other major third countries 
with important derivatives markets (e.g. US, Japan, Canada, Australia, HK, Republic of 
Korea, Singapore) as they consider that these counterparties do not bring systemic risk to 
the  financial  system.  This  situation  risks  creating  an  un-level  playing  field  at  the 
international level and puts EU NFCs in a less favourable position than their competitors 
established in third countries, especially for groups with ties in third countries and when 
the same type of derivatives are traded within and outside the EU.  

As a result, keeping in mind the objective of EMIR to capture and address the systemic 
risks of derivatives transactions, it would appear that the EU framework currently covers 
at least some NFCs which present very limited systemic risk to the financial system as 
has  already  been  recognised  in  other  global  jurisdictions.  Furthermore,  the  inclusion  of 
such non-systemic entities under EMIR's requirements is both costly and impractical for 
some  of  them  to  apply,  particularly  in  light  of  the  obstacles  that  smaller  market 
participants face in accessing central clearing, as further described in section 3.4. 

3.2.1.3.  Small Financial Counterparties ('SFCs') 

As presented in Table 1, the scope of the EMIR clearing obligation captures all financial 
counterparties69 irrespective of their size and of their volume of OTC derivatives activity. 
Trading  associations70,  as  well  as  associations  that  typically  represent  small  banks71, 
argued that the costs generated by the clearing obligation were disproportionate in light 
of  the  limited  systemic  risk  posed  by  smaller  financial  counterparties.  They  also 

68  Directive  2014/65/EU  of  15  may  2014  on  market  in  financial  instruments  (MiFID)  Article  2(1)(j) 

specified by ESMA RTS 20 (mandate in Article 2(4)). 

69  Article 4(1)(a)(i) of EMIR. 
70  E.g. Association for Financial Markets in Europe (AFME) and the International Swaps and Derivatives 

Association (ISDA). 

71  E.g. European Association of Co-operative Banks (EACB), 

29 

 
 
                                                 
explained  that  the  clearing  obligation  creates  considerable  implementation  issues  for 
these smaller financial counterparties, notably because of the difficulties smaller market 
participants,  including  very  small  financials,  face  with  regards  to  access  to  clearing72. 
This  concerns  financial  counterparties  with  small  derivatives  portfolios,  for  instance 
small banks, that need to conclude interest rate swaps to cover their activities (i.e. interest 
rate swaps to cover their mortgage loan portfolio) or small funds that want to cover risks 
linked to their portfolios (i.e. foreign exchange risk).  

EMIR does not differentiate between (very) small and larger financial counterparties. It is 
therefore  challenging  to  provide  a  clear  difference  of  what  would  represent  a  small 
financial counterparty. Lacking a common definition, and in order to provide an order of 
magnitude,  this  impact  assessment  considers  Small  Financial  Counterparties  (SFCs)  as 
financial  counterparties  defined  as  Category  3  counterparties  under  the  existing 
Commission  Delegated  Regulations  on  the  clearing  obligation.  These  are  financial 
counterparties  (and  certain  funds  which  are  classified  as  non-financial  counterparties) 
belonging  to  a  group  whose  aggregate  positions  in  OTC  derivatives  are  EUR  8bn  or 
below.73  

Direct access to a CCP implies costs and risks that at least some of those SFCs are not in 
a position to bear: to be a direct participant in a CCP, firms are required to put in place 
specific  infrastructures  and  dedicate  a  large  amount  of  resources  that  smaller  financial 
counterparties do not necessarily have at their disposal.74 But even if the small financial 
counterparties would overcome these problems, this would not necessarily mean that (all) 
CCPs  were  in  a  position  to  accept  smaller  participants  as  clearing  members  for 
infrastructure or risk management reasons.  

For these small financial counterparties, it is therefore necessary to become the client of a 
clearing  member,  or  to  establish  indirect  clearing  arrangements.  However,  ESMA 
confirmed  in  a  consultation  paper  that  Category  3  counterparties,  i.e.  those  with  the 
smallest  level  of  activity  in  OTC  derivatives,  are  facing  important  difficulties  in 
preparing  the  arrangements  with  clearing  members  that  are  necessary  for  clearing  the 
contracts.  First,  in  relation  to  client  clearing,  recent  evidence  suggests  that  clearing 
members find little incentives to develop extensively their client clearing offer because of 
cost  issues,  and  even  more  so  for  clients  with  limited  activity  in  OTC  derivatives. 
Estimates by ISDA reported by the Financial Times suggest that many clearing members 
are setting minimum revenues or clearing fees that range from EUR 95 000 to EUR 265 
000  according  to  current  exchange  rates75.  This  may  be  a  significant  fixed  cost  for  a 
small  financial  counterparty  with  a  very  limited  volume  of  OTC  derivatives  activity. 
Second, in relation to indirect clearing arrangements, ESMA indicated that counterparties 
are currently unable to access CCPs by becoming an indirect client of a clearing member, 
because  of  the  scarcity  of  the  offer.  These  obstacles  to  central  clearing  are  dealt  with 

72  See section 3.4. 
73  Commission Delegated Regulation (EU) 2015/2205 of 6 August 2015 supplementing Regulation (EU) 
No  648/2102,  OJ  L  314,  1.12.2015,  p.  13;  Commission  Delegated  Regulation  (EU)  2016/592  of  1 
March  2016  supplementing  Regulation  (EU)  No  648/2012,  OJ  L  103,  19.4.2016,  p.  5,  and 
Commission Delegated Regulation (EU) 2016/1178 supplementing Regulation (EU) No. 648/2012, OJ 
L 195, 20.7.2016, p. 3. 

74  For membership requirements see para. 3.3. 
75   Philip  Stafford,  OTC  markets,  Derivatives  'Big  Bang'  catches  market  off  guard,  Financial  Times, 

02.02.2017, https://www.ft.com/content/086ec02a-e6fc-11e6-967b-c88452263daf  

30 

 
 
                                                 
further in  the separate section  on 'insufficient  access to  clearing' that  deals  with  factors 
impacting the offer of such services (Section 3.4). The important constraints and costs for 
SFCs  to  have  access  to  clearing  services  risk  forcing  them  to  cease  some  of  their 
activities. This risk, as well as the high costs, may however not be justified by the added 
value achieved for regulatory purposes.  

Taking  into  account  the  costs  and  administrative  burden  that  the  clearing  obligation 
represents, there is a need to appreciate the degree of systemic risk that these SFCs pose, 
by considering both (i) the volume of their OTC derivatives activity and (ii) their level of 
interactions  with  other  counterparties.  On  the  first  point,  ESMA  presented  in  2016 
extensive  data  in  a  consultation  paper  on  the  clearing  obligation  for  financial 
counterparties  with  a  limited  volume  of  activity76.  ESMA  assessed  the  activity  of 
financial  counterparties  in  OTC  derivatives  asset  classes  already  subject  to  a  clearing 
obligation, using data from European trade repositories, on three different dates covering 
a  timespan  of  one  year:  20  February  2015,  3  August  2015  and  29  February  2016.  As 
shown  in  Figure  6,  ESMA  established  that  around  6  000  European  financial 
counterparties  were  active  in  the  OTC  interest  rate  asset  class,  the  number  being 
relatively stable on the three dates of the study, whereas in the OTC credit asset class the 
number  of  active  European  financial  counterparties  oscillated  between  around  2  000  in 
February 2015 and 2 800 one year later.  

Figure 6.  Number of counterparties per asset class (credit and interest rate asset class) 

76  See ESMA, Consultation Paper on the clearing obligation for financial counterparties with a limited 
ESMA/2016/1125, 

activity, 

2016, 

of 

July 
volume 
https://www.esma.europa.eu/sites/default/files/library/2016-
1125_cp_on_clearing_obligation_for_financial_counterparties.pdf  

13 

31 

 
 
 
                                                 
Source: European Securities and Markets Authority77 

The ESMA paper highlights that the distribution of trades among financial counterparties 
is  highly  concentrated,  i.e.  a  relatively  small  number  of  the  largest  financial 
counterparties  account  for  an  important  share  of  the  total  market.  Figure  7  below 
highlights  the  asymmetric  distribution  of  trades  both  in  the  interest  rate  and  the  credit 
asset  classes.  Based  on  the  trades  outstanding  on  29  February  2016,  the  largest  50 
counterparties accounted for 95% of the credit and interest rate OTC derivative volume; 
and the largest 100 counterparties accounted for 96%-97% of the credit and interest rate 
OTC derivative volume, measured by outstanding notional amounts. 

Figure 7: Contribution of Top 100 FCs to outstanding notional amount 

Source: European Securities and Markets Authority78 

Both the interest rate derivative and the credit derivative markets show important levels 
of concentration on a small number of large counterparties. For example in the interest 
rate  derivative  asset  class,  490  counterparties  (the  ones  with  portfolios  of  OTC  interest 
rate derivatives above EUR 5bn) represent 99.4% of the activity, while only accounting 
for 8.4% of the total number of financial counterparties79. Looking at different categories 
of  counterparties,  clearing  members  represent  94.5%  of  the  volume  and  1.2%  of  the 
number of counterparties, other counterparties with individual portfolios above EUR 8bn 
represent  4.4%  of  the  volume  and  4.5%  of  the  number  of  counterparties  and 

77  https://www.esma.europa.eu/sites/default/files/library/2016-

1125_cp_on_clearing_obligation_for_financial_counterparties.pdf  

78  https://www.esma.europa.eu/sites/default/files/library/2016-

1125_cp_on_clearing_obligation_for_financial_counterparties.pdf  

79   See  ESMA, Consultation Paper  on  the  clearing obligation for financial  counterparties  with  a  limited 
ESMA/2016/1125, 
2016, 

July 

13. 

13 

of 

p. 

1, 

Table 
volume 
https://www.esma.europa.eu/sites/default/files/library/2016-
1125_cp_on_clearing_obligation_for_financial_counterparties.pdf 

activity, 

32 

 
 
 
                                                 
counterparties  with  individual  portfolios  below  EUR  8bn  represent  only  1.1%  of  the 
volume but 94.3% of the number of counterparties80.  

Similarly, in the credit derivative asset class, less than 400 counterparties (the ones with 
portfolios of OTC credit derivatives above EUR 500mn) represent 98.6% of the activity, 
and  14.5%  in  terms  of  number  of  counterparties81.  Conversely,  this  means  that  an 
important number of counterparties account for only a small fraction of the total volume. 
Analysing this in more detail, clearing members represent 85.6% of the volume and 0.7% 
of  the  number  of  counterparties,  other  counterparties  with  individual  portfolios  above 
EUR  8bn  represent  9.3%  of  the  volume  and  5.9%  of  the  number  of  counterparties  and 
counterparties  with  individual  portfolios  below  EUR  8bn  represent  only  5.1%  of  the 
volume but 93.5% of the number of counterparties82. 

Additional tables and charts illustrating this are included in Annex 2B. 

The asymmetry in the distribution of trades was one of the justifications for the adoption 
of a phased-in implementation schedule for the clearing obligation, i.e. starting with the 
few  but  most  active  counterparties  (clearing  members)  and  adding  progressively  an 
increasing  number  of  less  active  counterparties  (see  also  the  impact  assessments  of  the 
first two final reports on the clearing obligation on interest rate swaps (IRS)83 and credit 
default  swaps  (CDS)84).  In  November  2016,  based  on  the  data  presented  above  ESMA 
proposed  to  delay  the  application  of  the  clearing  obligations  for  small  financials 
(category  3  counterparties)85  by  two  additional  years  with  regard  to  the  clearing 
obligation for OTC interest rate derivatives denominated in EUR, GBP, JPY, and USD 
and the shorter delay of about 1 year and 4 month with regard to the clearing obligations 
for  OTC  index  credit  default  swaps  and  OTC  interest  rate  derivatives  denominated  in 
NOK,  PLN  and  SEK  (all  until  June  2019)  due  to  the  disproportionate  burden  or 
impossibility for these counterparties to use central clearing in 2017.  

Finally, with regard to the degree of interconnectedness of SFCs, it is necessary to take 
into account the network structure of the OTC derivatives market, as presented in Figure 
2 of section 3.1.3, which focuses on the interactions between market participants active 
in  the  IRS  market.  Figure  2  shows  that  the  category  'other  financials',  which  does  not 
include the largest Financial Counterparties such as clearing members and banks, do not 
sit  at  the  core  of  the  market.  This  suggests  that  SFCs  tend  to  be  connected  to  fewer 

80   Ibid, Figure 5, p. 20. 
81   Ibid, Table 2, p. 14.  
82   Ibid, Figure 6, p. 20. 
83  ESMA,  Final  Report,  Draft  technical  standards  on  the  Clearing  Obligation  –  Interest  Rate  OTC 
ESMA/2014/1184, 

2014, 

Derivatives, 
https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2014-
1184_final_report_clearing_obligation_irs.pdf  

October 

1 

84  ESMA,  Final  Report,  Draft  technical  standards  on  the  Clearing  Obligation  –  Credit  Derivatives, 
1 October 2015, 

ESMA/2015/1481, 
https://www.esma.europa.eu/sites/default/files/library/2015/11/2015-
1481_final_report_clearing_obligation_index_cds.pdf  

85  For  the  purpose  of  applying  the  clearing  obligation  for  different  classes  of  OTC  derivatives, 
counterparties have been divided in four categories that are defined in regulatory technical standards. 
See,  for  instance,  Article  2  of  Commission  Delegated  Regulation  (EU)  2016/592  of  1  March  2016 
supplementing  Regulation  (EU)  No  648/2012  of  the  European  Parliament  and  of  the  Council  with 
regard to regulatory technical standards on the clearing obligation. 

33 

 
 
                                                 
intermediaries than larger FCs, suggesting a relatively lower  systemic risk for financial 
stability. 

3.2.2.  Scope of EMIR reporting requirements 

In the public consultation, stakeholders characterised a number of different aspects of the 
existing reporting requirements under EMIR as excessively burdensome. 

3.2.2.1.  The backloading obligation86 

According to Article 9(1) of EMIR, counterparties are required to report their derivative 
contracts which: (a) were entered into before 16 August 2012 and remain outstanding on 
that date; (b) are entered into on or after 16 August 2012. 

Article  9(6)(b)  empowers  ESMA  to  “develop  draft  implementing  technical  standards 
specifying  the  date  by  which  derivative  contracts  are  to  be  reported,  including  any 
phase-in  for  contracts  entered  into  before  the  reporting  obligation  applies”.  These 
implementing  technical  standards  (ITS)  were  adopted  by  means  of  Commission 
Implementing  Regulation  (EU)  No  1247/2012  of  19  December  2012.  In  addition  to 
setting out a start date for the reporting obligation (which depended on certain conditions 
being fulfilled, but became effective on 12 February 2014), the ITS put in place a 3 year 
phase-in  for  the  reporting  of  contracts  entered  into  between  the  date  referred  to  in 
Article 9  of  EMIR  and  the  start  of  the  reporting  obligation,  and  which  were  no  longer 
outstanding on the latter date. In other words, ‘historic’ contracts were to be reported by 
12 February 2017 at the latest. The main reason for this phase-in period was to avoid a 
huge number of trades being reported shortly before the start of the reporting obligation. 
The revised ITS adopted by the Commission on 26 October 2016 extended this deadline 
for a further 2 years, until 12 February 2019. 

The  requirement  to  report  historic  trades  was  intended  to  give  regulators  a  complete 
overview of the derivative markets since the entry into force of EMIR by providing them 
with  relevant  historic  reference  data  and  thus  enable  regulators  to  obtain  a  picture  of 
potential  ongoing  risks  and  exposures.  This  has  however  not  happened  for  several 
reasons. Firstly, in practical terms, this requirement is virtually impossible to fulfil. For 
example,  there  are  very  high  failure  rates  due  to  the  lack  of  certain  reporting  elements 
which  were  not  required  at  that  time  or  to  the  lack  of  a  requirement  to  use  the  Legal 
Entity Identifier (LEI) prior to the start of the reporting obligation. As such, the quality 
and therefore the added value of the generated data is very low compared to the burden it 
generates,  which  implies  that  there  is  a  high  likelihood  that  this  data  will  remain 
unused.87 The provision of such inaccurate and low quality data therefore will not enable 
regulators  identify  risks  and  thus  achieve  what  it  was  originally  designed  to  do. 
Secondly, the fact that the data will remain unused is made even more likely by the fact 
that backloaded data will, for the most part, be quite old and will therefore be of less use 
than more recent data. Quite a few historical transactions will have already expired and 
with them, the corresponding exposures and risks. Furthermore, some of the non-expired 
historic  trades  are  reported  in  any  case,  as  modifications  to  the  original  contract  made 

86  The  term  'backloading'  is  used  to  refer  to  the  obligation  of  reporting  historical  trades,  i.e.  derivative 

transactions concluded before the start of the reporting obligation in February 2014. 

87  ESMA, EMIR Review Report no.4, ESMA's input as part of the Commission consultation on the EMIR 
https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1254_-

Review, 
_emir_review_report_no.4_on_other_issues.pdf  

34 

 
 
                                                 
after the start of the reporting obligation need to be – and are – reported according to the 
rules for new trades. Therefore, the number of historic trades which remain unreported is 
likely  to  be  only  a  fraction  of  all  historic  trades  falling  within  the  scope  of  this 
requirement. 

For the above reasons, respondents to the public consultation (primarily companies and 
industry  associations,  but  also  non-governmental  associations  and  public  authorities) 
considered  the  ‘backloading’  requirement  as  very  problematic  and  burdensome  while 
bringing virtually no added value. This view was also shared by ESMA, which based its 
assessment on a limited number of trades which have already been backloaded. 

3.2.2.2.  Reporting of intragroup transactions  

Intragroup  transactions  are  defined  in  Article  3  of  EMIR  as  OTC  derivative  contracts 
entered  into  with  another  counterparty  which  is  part  of  the  same  group.  With  the 
exception  of  certain  risk-mitigation  techniques,  from  which  intragroup  transactions  are 
exempt  under  certain  conditions,  all  other  EMIR  requirements  currently  apply  to 
intragroup trades in the same way as they do to all other transactions.  

Intragroup derivative transactions are usually carried out to hedge against certain market 
risks or aggregate such risks at the level of the group. Their number is usually quite large 
– according to one source88, the volume of IGTs entered into by companies on an annual 
basis  varies between  approximately  28  000  and  more  than 120  000  trades.  However  in 
practice,  in  most  cases  these  large  volumes  of  intragroup  trades  result  in  significantly 
fewer external trades after netting. This is illustrated by the table below. 

Figure  8  -  Relation  between  internal/external  derivatives;  annual  reporting  costs 
(2015) 

Source: Deutsches Aktieninstitut e.V. 

In  another  case,  122  000  intragroup  trades  netted  down  to  just  over  16  000  external 
trades.  This  is  in  line  with  other  data  which  indicated  that  the  inclusion  of  IGTs  in  the 
reporting  requirement  can  result  in  as  much  as  a  threefold  increase  in  the  number  of 
transactions which need to be reported. 

88  Although  the  sources  of  the  vast  majority  of  data  on  intragroup  trades  received  by  the  European 

Commission are confidential, several anonymised examples were provided.  

35 

Relation between internal / external derivatives; annual reporting costs (2015) Company  Annual revenue (bn. Euro) Internal / external derivatives Annual reporting costs (Euro in thousands) 1 150 18% 200 2 71 46% 50 3 65 61% 500 4 60 n.a. 50 5 46 n.a. 150 6 32 100% 20 7 22 50% 25 8 21 20% 30   
 
                                                 
As  can  be  deduced  from  the  above,  in  most  cases,  intragroup  trades  do  not  have  a 
significant  impact  on  the  risk  profile  of  the  group  as  a  whole.  Given  this  nature  of 
intragroup  transactions,  there  is  reason  to  believe  that  such  trades  have  a  more  limited 
impact  on  systemic  risk  than  trades  between  different  groups  or  companies.  The 
requirement  to  report  these  transactions  can  be  considered  particularly  burdensome  for 
smaller counterparties and in particular NFCs, whose intragroup trades represent only an 
insignificant  proportion  of  the  market.  Reflecting  these  concerns,  some  jurisdictions 
(notably the CFTC in the United States) have excluded NFCs and small financials from 
the requirement to report their intragroup transactions.  

Many respondents to the public consultation (including companies, industry associations, 
trade associations, public authorities and others) confirmed this view by asserting that the 
obligation  to  report  intragroup  transactions  is  unnecessary  as  these  transactions  carry 
very  little  systemic  risk,  while  it  is  highly  burdensome  (due  to  the  potentially  very 
significant volumes of such trades but also to the fact that every entity in the group needs 
to  be  assigned  a  LEI)  and  potentially  even  harmful,  as  this  data  can  distort  the  true 
picture  of  the  market.  Several  respondents  pointed  out  that  the  requirement  to  report 
intragroup transactions may also reduce the use of delegation of reporting by corporates, 
as  these  trades  do  not  involve  an  external  counterparty  to  which  reporting  could  be 
delegated. For the same reason, it requires NFCs which are part of a group to establish 
relationships with trade repositories, in many cases just for a few intragroup trades. 

3.2.2.3.  Reporting of exchange-traded derivatives ('ETDs') 

According to Article 9(1) of EMIR, counterparties are required to report the details of all 
of their derivative contracts to trade repositories, irrespective of whether these are OTC 
or ETD contracts. As far as the reporting obligation is concerned, EMIR does not make 
any distinction between these two types of derivative contracts.  

Many  respondents  felt  that  the  obligation  to  report  ETDs  is  superfluous  since  the 
exchanges should normally possess a good portion (if not all) of the relevant data on the 
trade, as a result of the set-up of the reporting obligation in Article 26 of Regulation (EU) 
No  600/2016  of  the  European  Parliament  and  the  Council  (Markets  in  Financial 
Instruments Regulation - MiFIR) and Regulatory Technical Standard 22 to MiFIR89. The 
respondents  (primarily  companies  and  industry  associations,  but  also  public  authorities 
and  trade  unions)  claimed  that  this  requirement  therefore  increases  burdens  without 
adding  any  value.  They  also  pointed  out  that  the  G20  never  called  for  the  reporting  of 
ETDs, and many other jurisdictions do not require the reporting of ETDs. The majority 
of respondents called for the exemption of ETDs from EMIR reporting requirements.  

ESMA acknowledges that the requirement to report ETDs on a trade-by-trade basis poses 
a  rather  significant  burden  in  terms  of  costs  of  reporting  and  data  storage  capacity90  of 
counterparties  and  trade  repositories.  These  costs  are  due  to  the  substantial  number  of 

89  Commission Delegated Regulation C(2016) 4733 final of 28 July 2016 
90  EMIR  imposes  record  keeping  requirements  on  both  counterparties  and  TRs.  Article  9  obliges 
counterparties  to  maintain  record  of  the  information  reported  for  at  least  five  years  from  the 
termination of the contract. In addition, Article 80(3) requires Trade Repositories to maintain record of 
the information received for at least ten years following the termination of the relevant contracts. 

36 

 
 
                                                 
ETDs trades being transacted on a daily basis and the significant number of positions that 
are opened and closed intraday.91 

Given the significant number of derivative transactions concluded on exchanges and the 
fact that the exchanges already possess many of the details of such transactions, the claim 
that  the  requirement  to  report  ETDs  is  burdensome  and  even  to  some  extent  redundant 
appears  to  have  some  merit.  More  broadly,  ESMA  shares  the  respondents'  view 
concerning  significant  costs  and  burdens  of  ETD  reporting.  Nevertheless,  as  it  is  also 
pointed out by ESMA, the reporting of ETDs under EMIR serves a variety of purposes 
for  several  EU  authorities  and  there  are  direct  linkages  with  other  pieces  of  legislation 
(e.g.  MiFIR  exemptions  provided  transactions  are  reported  under  EMIR).  Furthermore, 
the data received by trading venues is not the same as that required to be reported under 
EMIR92. In light of the above, at this stage ESMA does not recommend an exemption for 
ETDs  from  the  reporting  obligation.  However,  they  suggest  that,  by  modifying  certain 
aspects of the requirement, it seems possible reduce the burden of reporting ETDs while 
ensuring that the necessary data is reported to TRs.  

3.2.2.4.  Double sided reporting 

Article  9(1)  of  EMIR  requires  all  counterparties  and  CCPs  to  ensure that  the  details  of 
any  derivative  contract  that  they  have  concluded,  as  well  as  any  modification  or 
termination of such a contract, are reported to trade repositories. While a counterparty or 
a  CCP  may  delegate  the  reporting  to  another  actor,  this  does  not  exonerate  it  from  the 
obligation to report the transaction. In other words, both sides to the transaction have the 
obligation  to  report  the  contract  in  a  system  known  as  'double-sided  reporting'  (as 
opposed to 'single-sided reporting', where only one party to the transaction reports).  

Respondents  (primarily  companies  and  industry  associations,  but  also  including  public 
authorities, trade associations, non-governmental organisations and others) to the public 
consultation considered that the requirement for double-sided reporting causes significant 
costs  and  burdens,  leads  to  a  high-level  of  mismatched  trades,  and  produces  a  risk  of 
double-counting  contracts.  This  in  turn  supposedly  puts  into  question  the  data  held  in 
TRs  and  its usefulness  for  assessing  systemic  risk.  Some  respondents  went  so  far  as  to 
say  that  double-sided  reporting  actually  increases  risk.  Many  claimed  that  the  lack  of 
standardised  data  fields  and  insufficient  guidance  further  accentuate  the  problem.  The 
vast majority of industry respondents suggested a move to single-sided reporting, though 
there were a number of variants (e.g. for all trades/counterparties, only for NFCs/NFC-s, 
for all smaller counterparties, only for exchange-traded derivatives, only CCPs to report, 
etc.). It should also be mentioned that a small number of respondents (including at least 
one company and one industry association) opposed the idea of moving to single-sided 
reporting for all transactions, either because they felt that double-sided reporting ensures 
better quality of data by facilitating trade reconciliation or because they did not wish to 
see the investments made to put into place the necessary reporting system go to waste.  

91  Based on the contribution by ESMA.  
92  For  example,  data  reported  under  MiFIR  includes  very  specific  information  on  the  timing  of  the 
execution,  the  identity  of  the  investment  firm  responsible  to  executing  the  transaction,  or  the 
underlying  index.  None  of  these  are  relevant  for  EMIR,  which  however  requires  information  on 
margins  and  collateralisations,  as  well  as  a  much  greater  level  of  detail  on  the  types  of  derivatives 
being transacted.   

37 

 
 
                                                 
While  there  is  no  question  that  double-sided  reporting  does  entail  a  greater  burden  in 
terms of reporting when looking at it from the point of view of both counterparties to a 
transaction,  the  main  reason  for  using  this  approach  in  EMIR  is  to  help  ensure  a  high 
level of data quality. Good data quality is indispensable for supervisory authorities to be 
able to carry out their obligations in terms of monitoring systemic risk and market abuse. 
Without  high  quality  data,  regulators  and  supervisors  cannot  fully  optimise  the  data  at 
their disposal. National competent authorities frequently complain about the poor quality 
of  data  at  present,  which  restricts  their  ability  to  effectively  monitor  the  market  and 
identify  risks.  Nevertheless,  even  despite  the  poor  quality  of  data,  the  reported  data  is 
already  starting  to  be  used  for  assessing  market  liquidity,  market  concentration,  for 
checking whether various thresholds have been met, etc., as was evidenced by anecdotal 
confidential information from several regulators/supervisors as part of  the EMIR public 
consultation.  Several  other  jurisdictions  globally  also  apply  a  double-sided  reporting 
system to ensure data quality.93 

Specifically,  when  both  counterparties  to  a  trade  are  required  to  report  data  on  their 
transaction, all elements of the reported data should match. Where the data do not match, 
this is a clear indication that there is a problem either with the reporting or, in the worst 
case scenario, with the underlying transaction. The trade repository can then request the 
two  sides  to  verify  their  data  with  a  view  to  reconciling  the  trade.  In  a  single-sided 
reporting system, this automatic check does not exist, and the trade repository has to trust 
that the reporting counterparty has submitted correct data. As such, contrary to what was 
claimed by some respondents to the public consultation, double-sided reporting generally 
results  in  higher  rather  than  lower  quality  of  data  in  trade  repositories,  which  in  turn 
means  that  the  data  is  more  useful  to  market  supervisors  when  carrying  out  their 
obligations. 

In  fact,  it  has  been  found  that  most  of  the  data  quality  issues  are  due  to  insufficiently 
defined  and  harmonised  reporting  standards,  an issue  which  has  to  a large  degree  been 
addressed by way of amendments to the relevant technical standards adopted recently by 
the Commission.94 ESMA is currently also working on more detailed guidelines for trade 
repositories  on  the  method  for  aggregating  trades,  which  should  help  to  minimise  the 
double-counting of trades.  

ESMA generally shares the view that double-sided reporting ensures better data quality 
and recommends in its contribution that this reporting system be maintained, although it 
suggests  that  the  approach  taken  in  the  Securities  Financing  Transactions  Regulation 
('SFTR')95, 
reporting  small  and  medium-sized  non-financial 
counterparties,  could  be  considered.96  Also,  double-sided  reporting  simplifies  the 
enforcement  of  the  reporting  obligation.  With  this  system,  there  is  no  doubt  that  both 

to  exempt 

from 

93  E.g. Australia, Brazil, Hong Kong, Japan and Mexico. 
94  Commission  Delegated  Regulation (EU) of 19.10.2016 with regard  to  regulatory  technical  standards 
on  the  minimum  details  of  the  data  to  be  reported  to  trade  repositories,  C(2016)  6624  final,  and 
Commission Implementing Regulation (EU) of 26.10.2016 amending Implementing Regulation (EU) 
No 1247/2012 laying down implementing technical standards with regard to the format and frequency 
of trade reports to trade repositories, C(2016) 6801 final. 

95  Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on 
transparency  of  securities  financing  transactions  and  of  reuse  and  amending  Regulation  (EU)  No 
648/2012. 

96  https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1254_-

_emir_review_report_no.4_on_other_issues.pdf  

38 

 
 
                                                 
counterparties to the trade need to report the transaction, and there is no excuse for not 
doing  so.  In  a  single-sided  reporting  system,  sometimes  quite  complex  rules  are 
necessary  for  defining  which  counterparty  is  responsible  for  reporting  the  trade.  There 
are known instances where trades have gone unreported as both sides to the trade claimed 
that they believed the obligation to report was on the other counterparty.97 With double-
sided  reporting,  such  situations  will  not  occur  by  definition.  It  should  be  noted  that, 
recently, some jurisdictions which currently use the single-sided reporting approach are 
recognising  that  significant  data  quality  issues  may  in  part  stem  from  the  use  of  this 
system. 

3.3.  Insufficient transparency of OTC derivatives positions and exposures 

A number of different issues adversely affect transparency of OTC derivatives positions 
and exposures, thus hampering supervision and oversight of the derivatives market. 

3.3.1.  Trade  repositories  –  insufficient  quality  of  data  and  difficulties  of 
data use 

In  the  EMIR  public  consultation,  numerous  respondents  (in  particular  companies  and 
industry  associations)  indicated  that  the  data  produced  by  trade  repositories  is  of  low 
quality and not sufficiently transparent, and therefore difficult to use. This is despite the 
large volumes of data being made available; in fact, the sheer volume of data may even 
further complicate the matter.  

In the public consultation three main reasons for the poor quality of data were identified: 
(i)  the  excessive  complexity  and  insufficient  standardisation  of  reporting  requirements; 
(ii)  the  lack  of  validations  of  the  reported  data  by  the  trade  repositories  and 
reconciliations between them; and (iii) the lack of a common methodology or clear rules 
for the subsequent production of the data. By way of example, prior to the introduction of 
ESMA's  validation  requirement  (verification  of  the  correctness  of  the  data)  through 
technical  standards  at  the  end  of  October  2015,  the  level  of  non-compliant  reporting 
messages  was,  on  average,  above  10%.  After  the  introduction  of  this  requirement,  and 
after  an  initial  spike  or  the  level  of  erroneous  messages  (which  suggests  that  the  error 
levels  in  the  previous  period  may  have  been  underestimated),  the  level  of  incompliant 
messages dropped to 6%. 

97 

Information  presented  in  the  framework  of  an  OTC  Derivatives  Regulators'  Forum  meeting.  Source 
confidential. 

39 

 
 
 
 
 
                                                 
Figure 9 - Level of non-compliant reporting messages 

Source: European Securities and Markets Authority 

Underlying these problems is the absence of adequate binding guidance in this respect.  

In  order  to  remedy  the  problem  of  low  data  quality,  the  respondents  (in  particular 
companies and industry associations) suggested that the standards, format, and content of 
reported  data  should  be  further  harmonised  and,  where  possible,  simplified;  that  trade 
repositories  should  be  obliged  to  validate  (i.e.  verify)  incoming  data  for  completeness 
and correctness and reconcile data between them; that end users (counterparties) should 
be granted access to data reported by them or on their behalf in order to be able to ensure 
its  correctness;  and  that  trade  repositories  should  be  required  to  make  available 
anonymised  consolidated/aggregated  data  to  facilitate  its  use  and  promote  greater 
transparency of the OTC derivative markets while ensuring data privacy. Finally, it was 
suggested that ESMA should provide adequate guidance in these areas, for example by 
setting  out  harmonised  validation  rules  and  a  common  aggregation  methodology  to  be 
implemented by all trade repositories. 

Easily  accessible,  high  quality  derivatives  data  is  crucial  for  regulators  and  relevant 
authorities to be able to fulfil their respective mandates correctly. Unfortunately, it is now 
acknowledged  that  the  data  produced  by  trade  repositories  is  not  only  of  insufficient 
quality,  but  that  the  way  in  which  it  is  produced  and  made  available  to  the  relevant 
authorities  makes  it  very  difficult  to  use  for  the  intended  purpose  of  monitoring  the 
derivatives  market.  This  is  not  only  inefficient  (high  reporting  costs  with  limited 
benefits)  but  it  could  potentially  prevent  regulators  and  supervisors  from  identifying 
financial stability risks in a timely manner. 

40 

 
 
 
The problem is due in part to the fact that EMIR was not precise enough in some of its 
elements relating to trade reporting and data availability. In line with its mandate, ESMA 
developed draft regulatory technical standards, which were adopted by the Commission, 
specifying  that  an  application  for  registration  of  a  trade  repository  should  include  a 
description of the procedures and arrangements to ensure the compliance of the reporting 
entity with the reporting requirements and the correctness of the data reported. However, 
there  was  no  requirement  for  such  procedures  and  arrangements  to  be  harmonised, 
resulting  in  trade  repositories  not  verifying  the  compliance  of  the  reports  with  EMIR 
requirements  in  a  consistent  manner.  As  a  result,  the  quality  of  the  data  held  in  trade 
repositories varies. In an attempt to remedy this situation, ESMA has developed guidance 
(in  the  form  of  Q&As)  on  the  data  validations  to  be  commonly  applied  by  trade 
repositories.98  It  must  be  noted,  however,  that  these  Q&As  are  not  legally  binding.  A 
similar  situation  exists  with  regard  to  the  EMIR  requirement  for  trade  repositories  to 
publish  aggregate  data  and  make  data  available  to  the  relevant  entities.  Technical 
standards were adopted, but these too were very general due to the strict mandate for the 
development  of  the  technical  standards,  thus  giving  insufficient  guidance  on  what  was 
expected in practice. 

Some  efforts  to  address  these  issues  are  already  ongoing.  Recently  adopted  technical 
standards99 introduce much more detailed requirements and standards to the data which is 
to  be  reported,  and  another  set  of  technical  standards  currently  under  preparation  by 
ESMA will tackle the consolidation, aggregation, and publication of data. Nevertheless, 
remaining flexibility in terms of the form of the reports, the data standards which can be 
used, and the methods and arrangements for reporting, as well as the lack of a legal basis 
for  the  definition  of  the  procedures  to  be  used  for  the  validation  and  reconciliation  by 
TRs  of  reported  data  continue  to  pose  challenges.  Finally,  there  are  currently  no 
requirements for TRs to make data reported on their behalf available to counterparties. 

Action  in  this  area  would  help  to  improve  the  quality  and  transparency  of  the  reported 
data, enabling authorities to use it more efficiently and effectively to monitor and identify 
the  Regulation  on  Securities  Financing 
financial  stability 
Transactions100  (SFTR)  already  gives  ESMA  a  broader  mandate  to  develop  draft 
technical  standards  in  this  respect,  it  would  also  have  the  benefit  of  aligning  the  two 
Regulations in order to ensure a common quality framework for trade repositories.  

risks.  Given 

that 

3.3.2.  Trade repositories – insufficient fines 

Article 65 of EMIR empowers ESMA to impose fines on trade repositories in case they 
intentionally  or  negligently  commit  any  of  the  infringements  listed  in  the  Annex  I  to 
EMIR.  The  same  fines  apply  to  trade  repositories  for  securities  financing  transactions 
under  the  Regulation  on  Securities  Financing  Transactions  (SFTR)  by  way  of  a  cross-
reference to EMIR. 

The basic amounts of fines depend on the infringement and vary between EUR 5 000 and 
10  000  or  EUR  10  000  and  20  000.  When  deciding  on  the  basic  amount  of  the  fines, 

98  https://www.esma.europa.eu/sites/default/files/library/2016-1176_qa_xix_emir.pdf  
99  Commission  Delegated  Regulation  (EU)  of  19.10.2016,  C(2016)  6624  final,  and  Commission 

Implementing Regulation (EU) of 26.10.2016, C(2016) 6801 final.   

100  Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on 
transparency  of  securities  financing  transactions  and  of  reuse  and  amending  Regulation  (EU)  No 
648/2012. 

41 

 
 
                                                 
ESMA needs to have regard to the annual turnover of the preceding business year of the 
trade  repository  concerned.  The  basic  amounts  can  be  adjusted  by  taking  into  account 
aggravating or mitigating factors that are listed in Annex II to EMIR. The amount of a 
fine cannot exceed 20% of the annual turnover of the trade repository concerned in the 
preceding  business  year,  unless  the  trade  repository  has  directly  or  indirectly  benefited 
financially from the infringement, in which case the amount of the fine should be at least 
equal to that benefit. 

In its input to the Commission's consultation on the EMIR Review101, ESMA first states 
that the amounts are not adequate and therefore not sufficiently dissuasive in view of the 
current  turnover  of  the  trade  repositories  (between  EUR 1  and  EUR 10 million). 
Accordingly,  ESMA  suggests  that  the  basic  amounts  should  be  raised  to  EUR 50  000, 
100 000 and 200 000 respectively, and that a provision should be added that the amount 
of  the  fine  is  at  least  2%  of  the  trade  repository's  turnover.  As  to  the  aggravating  and 
mitigating factors, ESMA considers that the current list should be reviewed to be more 
appropriate  with  the  trade  reporting  industry  and  the  type  of  infringements  at  stake.  In 
particular,  ESMA  points  out  that  the  factors  which  relate  to  the  duration  of  the 
infringement  should  be  reviewed.  The  significance  of  a  confidentiality  breach  is,  for 
example,  not  linked  to  its  duration,  which  can  be  very  short.  Therefore,  too  many 
infringements  could  benefit  from  the  mitigating  factor  that  the  infringement  has  been 
committed  for  less  than  10  days.  On  the  contrary,  the  aggravating  factor  that  the 
infringement has been committed for more than six months would be applicable in only 
very  few  cases.  Second,  ESMA  draws  attention  to  an  oversight  whereby  no  basic 
amounts  have  been  specified  for  infringements  relating  to  obstacles  to  the  supervisory 
activities (Section IV of Annex I of EMIR). 

The amount of fines imposed by ESMA on the largest EU registered trade repository for 
negligently failing to put in place systems capable of providing regulators with direct and 
immediate access to derivatives trading data was low. The amount of fines for the breach 
that lasted for nine months with three applicable aggravating factors was EUR 64 000102. 
In  comparison,  for  Credit  Rating  Agencies  (CRAs),  ESMA  can  impose  fines  between 
EUR 10 000 and 150 000 for infringements related to obstacles to supervisory activities, 
and  between  EUR 90  000  and  750  000  for  infringements  related  to  conflict  of  interest, 
organisational or operational requirements. 

As such, the level of fines that ESMA may impose potentially limits the effectiveness of 
ESMA's  supervisory  powers  under  EMIR  vis-à-vis  trade  repositories.  Furthermore,  the 
inability to impose adequate fines may limit the compliance with trade repositories with 
EMIR requirements, in particular on transparency, and thus indirectly financial stability. 

3.4.  Insufficient access to clearing  

Article  4  of  EMIR  requires  a  wide  range  of  counterparties  to  clear  through  CCPs  the 
OTC  derivatives  pertaining  to  a  class  that  has  been  declared  subject  to  the  clearing 

101  ESMA, EMIR Review Report no.4, ESMA input as part of the Commission consultation on the EMIR 
https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1254_-

Review, 
_emir_review_report_no.4_on_other_issues.pdf. 

102  https://www.esma.europa.eu/press-news/esma-news/esma-fines-dtcc-derivatives-repository-limited-

%E2%82%AC64000-data-access-failures. 

42 

 
 
                                                 
obligation. Only a limited number of these counterparties have direct access to CCPs and 
have become clearing members.103   

Figure  2  in  section  2  helps  illustrates  this  degree  of  intermediation,  through  the 
visualisation  of  the  outstanding  bilateral  IRS  positions.  Presented  by  the  ESRB  in  a 
September  2016  paper,  the  chart  shows  that  several  layers  of  intermediation  exist 
between  core  and  non-core  market  participants.  While  CCPs,  G16  dealers,  and  banks, 
which appear in the core of the chart, are connected to a large number of counterparties, 
with  many  connections  between  them,  peripheral  counterparties,  including  NFCs  and 
other financials, tend to access CCPs only indirectly, via only one intermediary.  

Although CCPs lowered their membership requirements to enable more counterparties to 
become clearing members,104 a clearing membership still requires sufficient financial and 
knowledge resources, efforts that are only economically reasonable to make if they can 
be  spread  over  a  high  business  volume  most  of  these  counterparties  do  not  have.  As 
described  in  section  3.2.,  for  OTC  derivatives  asset  classes  already  with  a  clearing 
obligation,  in  the  OTC  interest  rate asset  class  6  000  European  financial  counterparties 
were  active,  whereas  in  the  OTC  credit  asset  class  the  number  of  active  European 
financial  counterparties oscillated  between  around  2  000  and  2  800.  These  numbers  do 
not  include  non-financial  counterparties  that  typically105  do  not  fulfil  the  regulatory 
requirements for a direct access to clearing. In contrast, CCPs in the EU have between 3 
(ICE Clear Netherlands) and 186 (Eurex Clearing) clearing members.106 

The  second  subparagraph  of  Article  4(3)  of  EMIR  requires  counterparties  that  are  not 
themselves  clearing  members  to  become  a  client  of  a  clearing  member  or  to  establish 
indirect  clearing  arrangements  with  a  clearing  member  in  order  to  fulfil  their  clearing 
obligation for certain OTC derivatives once such an obligation enters into force for these 
counterparties.  Some  of  these  counterparties  need  to  become  the  client  of  a  clearing 
member  or  establish  indirect  clearing  arrangements  with  a  clearing  member  (i.e. 
becoming the client of a client) because they have to fulfil certain requirements for client 
status  or  want  to  pool  clearing  related  activities  within  groups.  The  ability  of  most 
counterparties to fulfil their clearing obligations is therefore subject to the availability of 
clearing  services  provided  by  clearing  members  or  their  clients  in  the  case  of  indirect 
clearing. 

It  seems  that  very  few  clearing  members  are  currently  offering  client  clearing  services 
and indirect clearing services to financial counterparties and NFC+107, or at least not to 
the smallest ones: the offer is not sufficient and/or is concentrated on very few clearing 
members in the market.108  

103  Timothy Lane, Jean-Philippe Dion and Joshua Slive, Access to central counterparties: why it matters 
and how it is changing, in: Banque de France, Financial Stability Review, No. 17, April 2013, p. 169 – 
179, see p. 173. 

104  Timothy Lane, Jean-Philippe Dion and Joshua Slive, Access to central counterparties: why it matters 
and how it is changing, in: Banque de France, Financial Stability Review, No. 17, April 2013, p. 169 – 
179, see p. 172 and 176. 

105  Nevertheless, clearing memberships of non-financial counterparties do exist especially in the field of 

commodity clearing. 

106  See Annex 2B: Overview of the clearing activities in Europe. 
107  Non-Financial Counterparties exceeding the clearing threshold. 
108  See ESMA, Consultation Paper on the clearing obligation for financial counterparties with a limited 
ESMA/2016/1125, 

activity, 

volume 

2016, 

July 

13 

of 

43 

 
 
                                                 
 
The reason for this seems to be that if customers like (very) small financial counterparties 
or  small  NFC+  trade  only  rarely,  the  fixed  costs  per  trade  make  the  clearing 
economically not feasible both for the counterparty that seeks access to clearing and the 
counterparty that provides that access. The ratio of fixed and variable costs differ from 
CCP to CCP, clearing member to clearing member and depends on the product cleared. 
In general, a counterparty will only become a clearing member and a clearing member/ 
client  will  only  on-board  another  counterparty  as  its  client  if  this  generates  immediate 
shareholder value (net profit after cost) or for which providing the clearing service at a 
loss  is  a  way  to  keep  or  attract  other  types  of  business  ("cross  selling").  Clearing 
members face significant fixed costs as they need to fulfil the membership requirements 
of the respective CCP. The membership requirements vary from CCP to CCP. Clients of 
clearing members do not face these costs as they access the CCP indirectly via a clearing 
member.  They  thereby  only  need  to  satisfy  any  requirements  imposed  by  the  clearing 
member.  These  requirements  are  typically  in  line  with  those  of  the  CCP.  Who  is 
responsible for what is, in such cases, typically governed by an agreement between the 
CCP,  the  clearing  member  and  the  client.  In  cases  of  indirect  clearing  even  more 
counterparties are involved. 

Examples for requirements to be met are: regulatory requirements (e.g. the need to be a 
regulated  financial  counterparty  or  certain  capital  requirements);  IT  requirements  (e.g. 
certain  interfaces,  automated  back  office  systems);  HR  requirements  (e.g.  the  need  to 
employ  certified  clearing  specialists  that  fulfil  the  knowledge  requirements  of  the  CCP 
and are, therefore, permitted to operate clearing systems); availability requirements (e.g. 
the need to be available for intraday margin calls during a certain period of time at each 
clearing  day);  collateral  requirements;  documentation,  reporting  and  compliance 
requirements. 

Different fees are charged including admission fees, license fees, fees per cleared trade 
and/or volume and maturity, booking fees, maintenance fees, fees for different collateral 
services,  etc..  The  Financial  Times  reports  that  ISDA  estimates  that  many  clearing 
members are setting minimum revenues or clearing fees that range from USD 100 000 to 
USD 280 000 per year, amounting according to current exchange rates to EUR 95 000 to 
EUR 265 000.109 This corresponds with the estimation of a CCP supervisor and clearing 
specialist  who  assumes  costs  of  one  trading  screen  to  be  about  EUR 100 000  per  year. 
Minimum fees in this price range essentially exclude clients from clearing services which 
execute  only  very  few  trades  per  year.  Assuming  a  minimum  fee  of  USD 100 000,  the 
clearing of 10 trades per year would cost USD 10 000 per trade. These costs undermine 
the  economic  feasibility  of  centralised  clearing for  small  counterparties with  infrequent 
trading patterns. In effect, they are prevented from taking advantage of the benefits of the 
clearing market such as increased liquidity.   

Even if a clearing member or client does not apply such a minimum fee, on-boarding a 
(very)  small  client  as  an  (indirect)  client  is  not  economically  feasible  for  a  clearing 
member  or  client.  Notwithstanding  the  number  of  trades  or  their  volume  the  clearing 

https://www.esma.europa.eu/sites/default/files/library/2016-
1125_cp_on_clearing_obligation_for_financial_counterparties.pdf;  ESMA,  Final  Report  on 
the 
clearing obligation for financial counterparties with a limited volume of activity, 10 November 2016, 
ESMA/2016/1565, 
https://www.esma.europa.eu/sites/default/files/library/2016-
1565_final_report_on_clearing_obligation.pdf. 

109  Philip  Stafford,  OTC  markets,  Derivatives  'Big  Bang'  catches  market  off  guard,  Financial  Times, 

02.02.2017, https://www.ft.com/content/086ec02a-e6fc-11e6-967b-c88452263daf  

44 

 
 
                                                                                                                                                 
member or client would have to assess if that client fulfils all requirements to accept it as 
a client, set up an account for assets and positions of that (very) small client, monitor its 
positions  and  fulfil  all  obligations  towards  any  up-stream  intermediary  counterparty 
including earmarking assets for potential default management procedures which tend to 
become  more  complicated  and  costly  when  counterparties'  assets  and  positions  are 
consolidated in one omnibus segregated account.110 These costs are not compensated by 
any rebate the clearing member or client might earn from the (very) few additional trades 
to  clear.111  Therefore,  even  if  minimum  fees  are  not  applied  and  fixed  cost  are  low 
because  a  standardised clearing  platform  which  minimises  (IT)  implementation  costs  is 
used, the variable costs of each trade must be significantly higher for (very) small than 
for  bigger  clients  to  be  economically  feasible  for  a  clearing  member  or  client. 
Counterparties  with  a  very  limited  volume  of  activities  in  centrally  cleared  markets  for 
which  an  access  to  clearing  through  standard  clearing  platforms  that  are  typically 
designed  to  handle  bigger  amounts  of  trades  will  have  to  negotiate  –  in  case  of  a  very 
small number of trades even on a case-by-case basis – tailor-made solutions. The costs of 
those  solutions  must  be  significantly  higher  because  documentation,  reporting,  etc. 
cannot  be  automated  in  these  cases,  so  that  much  more  manpower  per  trade  is  needed. 
The costs of such individual solutions are hard to quantify. 

Data  from  the  Financial  Stability  Board  shows  that,  taking  into  account  the  current 
clearing offering in the EU, the estimated percentage in the EU of transactions that have 
been centrally cleared out of all the new transactions that can be centrally cleared stands 
at 60-80%, while other G20 jurisdictions such as the US reaches estimates of 80-100%. 
In  other  words,  market  participants  in  the  EU  tend  to  enter  into  an  uncleared  OTC 
derivative  on  a  clearable  instrument  more  than  market  participants  in  other  G20 
jurisdictions. This suggests that there is scope for further uptake of central clearing and 
that there may be obstacles limiting access to central clearing offerings. 

110   Individual  segregated  accounts  are  even  more  costly  so  that  they  are  typically  out  of  question  for 

(very) small counterparties from an economic point of view. 

111   Examples  for  CCP  price  lists  for  OTC  clearing  of  IRS  and  ZCIS  derivatives  can  be  found  here: 
http://www.eurexclearing.com/blob/866458/cf5ce0a38a901e65ddd89df233f15a6a/data/eurexotc_clear
_fees.pdf;  http://www.lch.com/asset-classes/otc-interest-rate-derivatives/fees.  Please  note  that  this  is 
only  an  example  and  prices  can  differ  significantly  from  CCP  to  CCP  and  from  product  to  product. 
Furthermore, tailor-made pricing is a common practice.  

45 

 
 
 
 
                                                 
Figure  10  –  Estimated  existing  scope  for  central  clearing  of  OTC  interest  rate 
derivatives, March 2016 

Source: FSB OTC Derivatives Market Reforms - 11th progress report, August 2016 

Several issues have been identified under the EMIR public consultation as inhibiting the 
provision  of  clearing  services.  In  their  responses,  a  large  number  of  stakeholders  have 
mentioned the leverage ratio framework under Basel III and CRR as the main reason why 
banks are not incentivised to provide client clearing services.112 This hurdle to the access 
to  clearing  is  already  dealt  with  in  the  Commission's  legislative  proposal  to  amend 
Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, 
requirements for own funds and eligible liabilities, counterparty credit risk, market risk, 
exposures  to  central  counterparties,  exposures  to  collective  investment  undertakings, 
large  exposures,  reporting  and  disclosure  requirements  and  amending  Regulation  (EU) 
No  648/2012113.  In  that  proposal,  the  Commission  aims  to  exclude  from  the  leverage 
ratio  the  initial  margins  on  centrally  cleared  derivative  transactions  received  by 

112  ESMA, Final Report on the clearing obligation for financial counterparties with a limited volume of 
ESMA/2016/1565, 

November 

2016, 

activity, 
https://www.esma.europa.eu/sites/default/files/library/2016-
1565_final_report_on_clearing_obligation.pdf. 

10 

113  Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 
No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and 
eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures 
to  collective  investment  undertakings,  large  exposures,  reporting  and  disclosure  requirements  and 
amending  Regulation  (EU)  No  648/2012,  23  November  2016,  COM(2016)  850  final,  para.  8, 
http://ec.europa.eu/finance/bank/docs/regcapital/crr-crd-review/161123-proposal-amending-
regulation_en.pdf. 

46 

 
 
                                                 
institutions  in  cash  from  their  clients  and  that  they  pass  on  to  CCPs.114  It  will,  once 
adopted,  therefore,  ease access  to  clearing  as  the  capital  requirements  to  offer  client  or 
indirect clearing services will diminish. 

There  are  other  hurdles  on  access  to  clearing.  First,  although  Article  4  of  EMIR 
Delegated Regulation 149/2013 already requires clearing members that facilitate indirect 
clearing  services  to  do  so  on  reasonable  commercial  terms,  this  requirement  does  not 
seem  to  be  efficient  enough  to  encourage  a  sufficient  offer  of  client  and  indirect  client 
services. Stakeholders cite many different reasons why they are experiencing difficulties 
in  establishing  clearing  relationships  with  clearing  members.  They  claim  fixed  costs  of 
clearing  to  be  disproportionately  high  for  counterparties  with  low  volume  of  activity. 
They find them not transparent because of frequent pricing adjustments. In addition, they 
report  frequent  changes  in  legal  documentation  models  as  well  as  complicated  on-
boarding processes. In general, counterparties with a limited volume of activity explain 
that they generally face a lack of commitment from clearing members.115  

Second, some CCPs suggest that, among other things, the required default management 
procedures are an impediment to the development of clearing services from a legal and 
operational perspective.116 Although it is a requirement under international principles117 
for CCPs to have portability arrangements in place, several issues have been identified. 
In  particular,  there  are  concerns  that  EMIR  does  not  explicitly  provide  for  potential 
conflicts with Member States' national insolvency regimes with respect to requirements 
for  CCPs  to  transfer  client  positions  in  the  case  that  a  clearing  member  defaults 
('portability')  or  to  pay  directly  to  clients  the  proceeds  of  a  liquidation  ('leapfrog 
payment').  The  second  sentence  of  Article  39(7)  of  EMIR  only  requires  CCPs  and 
clearing members to publicly disclose details of the different levels of segregation and to 
describe  the  main  legal  implications  of  the  respective  levels  of  segregation  offered 
including  information  on  the  insolvency  law  applicable  in  the  relevant  jurisdictions. 
Recital 64 of EMIR seems to suggest, however, that the portability and leapfrog payment 
requirements  may  conflict  with  Member  States'  insolvency  laws  since  it  states  that  'the 
requirements laid down in this Regulation on the segregation and portability of clients’ 
positions and assets should therefore prevail over any conflicting laws, regulations and 
administrative  provisions  of  the  Member  States  that  prevent  the  parties  from  fulfilling 
them'. This  creates  legal uncertainty for clients and indirect clients  about  the risks they 
would  face  in  a  default  situation,  and  potentially  prevents  the  default  management 
elements from operating as intended.118 

114  See Recital 11 and Article 429c para. 4 of that Proposal.  
115  ESMA, Final Report on the clearing obligation for financial counterparties with a limited volume of 

activity, 10 November 2016, ESMA/2016/1565, 
https://www.esma.europa.eu/sites/default/files/library/2016-
1565_final_report_on_clearing_obligation.pdf. 
n°3 

Review 

report 

EMIR 

- 

116  ESMA, 

Review 

on 

the 

segregation 

and 

portability requirements, ESMA/2015/1253, 13 August 2015, 
https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1253_-
_emir_review_report_no.3_on_segregation_and_portability.pdf. ESMA reports in paragraph 32 of that 
report, that some CCPs found discrepancies between some Member States insolvency laws and EMIR 
because  of  which  the  EMIR  default  management  tools  are  not  enforceable  under  the  current  legal 
framework. 

117  CPMI-IOSCO, Principles for Financial Market Infrastructures (PFMIs), Principle 14. 
118  See  para.  5.2  of  ESMA,  EMIR  Review  report  n°3  -  Review  on  the  segregation  and  portability 

requirements, ESMA/2015/1253, 13 August 2015, 

47 

 
 
                                                 
 
Such  issues  cause  inefficient  (i.e.  lack  of  access)  and  potential  ineffective  (i.e.  lack  of 
clarity in the event of default or insolvency) clearing procedures, which could ultimately 
indirectly impact on financial stability.  

3.5.  Potential risks from inaction 

Not dealing with the problems described above would imply that the EMIR objectives to 
increase  the  transparency  of  the  OTC  derivatives  market,  to  reduce  counterparty  credit 
risk associated with OTC derivatives, and to reduce the operational risk associated with 
OTC  derivatives119  cannot  be  met  in  the  most  effective  and  most  efficient  way  since, 
without  any  EU  action,  the  current  EMIR  requirements  would  stay  in  place.  EMIR 
harmonises the regulatory framework in those areas so actions by the Member States to 
remedy problems of effectiveness and efficiency or to alleviate disproportionate financial 
and administrative burden on counterparties are not possible. Furthermore, several of the 
inefficiencies  identified  could  negatively  impact  financial  stability  in  a  variety  of  ways 
described above. The specific consequences are discussed in more detail in section 5 for 
the  respective  policy  areas  where  actions  are  considered.  In  short,  they  concern  the 
following areas. 

In the absence of any policy action Pension Scheme Arrangements would be required 
to  centrally  clear,  once  the  temporary  exemption  has  expired  (in  August  2018).  If  no 
technical  clearing  solution  for  PSAs  has  emerged  by  this  date,  the  resulting  significant 
additional costs would negatively impact the retirement income of pensioners.  

Some  non-financial  counterparties  that  present  very  limited  systemic  risk  to  the 
financial system would be subject to the clearing obligation even in asset classes where 
due to their small volume of activity the resulting burden is disproportionate. 

Despite  the  persisting  hurdles  to  have  access  to  central  clearing,  some  (very)  small 
financial  counterparties  would  –  after  the  full  phase-in  –  be  captured  by  the  clearing 
obligation  pursuant  to  EMIR,  even  where  it  is  not  economically  feasible  for  them  to 
clear, effectively subjecting them to an obligation that they cannot meet.  

With  regard  to  reporting,  disproportionate  costs  and  burdens  that  are  not  justified  by 
financial stability considerations will continue to be in place. There will also continue to 
be instances of redundant reporting, as with the ETDs. 

Concerning  the  transparency  of  OTC  derivatives  and  positions,  the  ability  of 
authorities  to  monitor  systemic  risk  in  OTC  derivative  markets  would  continue  to  face 
hurdles,  as  the  level  of  data  quality  and  data  transparency  would  continue  to  be 
suboptimal. This is due to imprecise rules and procedures, the lack of sufficient guidance 
in the absence of a sound legal basis for issuing such guidance, and the lack of clarity as 
to the allocation of responsibility for verifying, correcting, and reconciling reported data.  

The amount of fines that ESMA can impose to trade repositories would remain low and 
limit the effectiveness of ESMA's supervisory powers vis-à-vis the trade repositories, as 
the fines would not have the dissuasive effect considered necessary by regulators. 

https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1253_-
_emir_review_report_no.3_on_segregation_and_portability.pdf 

119  Reaching  these  specific  objectives  was  considered  necessary  to  achieve  the  general  objective  of 

reducing systemic risk by increasing the safety and efficiency of the OTC derivatives market. 

48 

 
 
                                                                                                                                                 
The difficulties of access to clearing in general and especially the legal uncertainty with 
regard  to  the  interaction  between  the  EMIR  default  management  tools  and  the  national 
insolvency  laws  would  remain  unchanged,  conflicting  with  the  counterparties'  need  for 
such access in the light of the clearing obligation for certain OTC derivatives classes. The 
resulting inability to hedge their positions could lead to an increase of risk in the financial 
system.  

The  transmission  mechanism  is  shown  in  the  problem  tree  below.  Besides  the  main 
drivers,  problems,  and  consequences  that  are  assessed  in  detail  in  the  current  text,  the 
problem tree also shows a number of other issues related to the existing framework that 
are outside of the assessment scope, namely:  

 

 
 

the  requirement  to  clear  contracts  before  the  clearing  obligation  takes  effect 
(frontloading),  
the lack of a mechanism to suspend the clearing obligation, and  
the  lack  of  transparency  in  CCPs'  and  counterparties'  risk  controls  and 
methodologies.  

A detailed description of these issues and an analysis of whether or not they should be 
addressed in the context of the EMIR Review is contained in Annex 6. These issues have 
not  been  included  in  the  main  body  of  the  impact  assessment  as  the  corresponding 
amendments  of  EMIR  are  of  a  minor  nature  or  merely  codify  existing  international 
requirements  in  EU  law.  In  the  case  of  the  'frontloading  requirement',  there  are  no  real 
policy options to be assessed, it can either be kept or deleted and the requirement is of a 
temporary  nature  without  impact  on  financial  stability.  Concerning  the  mechanism  to 
suspend  the  clearing  obligation,  the  withdrawal  or  amendment  of  an  existing  clearing 
obligation  is  already  possible  under  the  current  framework,  but  in  a  lengthy  procedure 
that may not be appropriate in certain scenarios; the issue at stake is thus merely whether 
an  expedited  procedure  for  a  temporary  suspension  is  warranted  to  allow  for  a  quicker 
regulatory  response  to  market  developments.  The  issues  of  the  approval  of  the  internal 
margin models and the transparency of risk controls are related to the implementation of 
international standards developed by CPMI-IOSCO and the FSB.  

49 

 
 
 
 
 
Problem tree 

Mandatory clearing and 
bilateral margin requirements 
do not sufficiently take into 
account the features of 
certain participants  

Reporting requirements 
applying to certain 
transactions are excessively 
burdensome (e.g. 
backloading, intragroup 
transactions, ETD, and 
double-sided reporting) 

The reported 
data is of low 
quality and 
difficult to use 

Fines for 
infringements of 
EMIR provisions 
by TRs are 
insufficient 

Legal uncertainty related to 
default management procedures 
and cumbersome segregation 
requirements make many clearing 
members consider client clearing 
economically unviable 

Compliance costs that in a 
number of cases outweigh 
prudential benefits 

Insufficient transparency of 
OTC derivatives positions 
and exposures 

Insufficient access to clearing   

EMIR objective to reduce systemic risk in the OTC derivatives market not met in most effective and efficient way 

Disproportionate regulatory and compliance burdens 

 The requirement to 
clear contracts 
concluded before the 
clearing obligation 
takes effect 
(frontloading) causes 
inconsistencies   

There is no 
mechanism for 
temporary 
suspension of 
the clearing 
obligation 

 CCPs' and 
counterparties' 
risk controls and 
methodologies 
lack 
transparency  

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4.  OBJECTIVES 

4.1.  Subsidiarity 

EMIR  is  a  regulation  and  as  such  binding  in  its  entirety  and  directly  applicable  in  all 
Member States. The legal basis for EMIR is Article 114 of the Treaty on Functioning of 
the European Union ('TFEU') and any changes to it would have the same legal basis. The 
objectives  of  EMIR  to  mitigate  the  risks  and  improve  the  transparency  and 
standardisation  of  OTC  derivative  contracts  by  laying  down  uniform  requirements  for 
such contracts and for the performance of activities of CCPs and trade repositories cannot 
be sufficiently achieved by the Member States and can therefore, by reason of the scale 
of  actions,  be  better  achieved  at  Union  level  in  accordance  with  the  principle  of 
subsidiarity as set out in Article 5 of the TFEU. 

4.2.  Objectives 

The  broad  general  objectives  behind  the  initiative  are  to  ensure  that  the  EMIR 
objectives are met in a more effective and efficient way and thus to reduce the risk of 
disproportionate regulatory and compliance burdens emanating from the application 
of EMIR, without putting financial stability at risk. 

These can be broken down in the following specific objectives: 

  Reduce  administrative  burden  and  compliance  costs  without  putting  financial 

stability at risk (S-1); 

 

Increase the transparency of OTC derivatives positions and exposures (S-2); 

  Reduce impediments to access to clearing (S-3). 

Problems 

Problem drivers 

Specific objectives 

Compliance costs that 
in a number of cases 
outweigh prudential 
benefits 

Mandatory clearing and bilateral margin requirements do 
not sufficiently take into account the features of certain 
participants. 

Reporting requirements applying to certain transactions 
are excessively burdensome. 

Reduce administrative 
burden and compliance 
costs, where this is possible 
without putting financial 
stability at risk 

Problems 

Problem drivers 

Specific objectives 

Insufficient 
transparency of OTC 
derivatives positions 
and exposures (data 
not clear, incomplete) 

Fines for infringements of EMIR provisions by TRs are 
insufficient 

The reported data is of low quality and difficult to use 

Increase the transparency of 
OTC derivatives positions 
and exposures 

Problems 

Problem drivers 

Specific objectives 

Insufficient access to 
clearing 

Legal uncertainty with regard to default management 
procedures in client clearing. 

Reduce impediments to 
access to clearing 

4.3.  Consistency of the objectives with other EU policies 

While EMIR pursues the general objective to reduce the systemic risk by increasing the 
safety and efficiency of the OTC derivatives market, the present initiative aims to render 
the  application  of  EMIR  more  effective  and  efficient  and,  by  fine-tuning  certain 

51 

 
 
 
 
 
requirements,  to  reduce  the  regulatory  and  compliance  burden  for  market  participants 
where compliance costs outweigh prudential benefits, but without endangering financial 
stability.  The  initiative  thus  contributes  to  the  Commission's  Better  Regulation  Agenda 
and  the  Regulatory  Fitness  and  Performance  (REFIT)  programme,  which  emphasise, 
inter alia, the review of existing EU laws, so that EU policies achieve their objectives in 
the  most  effective  and  efficient  way  and  aims,  in  particular,  at reducing  regulatory  and 
administrative burden. 

The  present  initiative  is  also  in  line  with  the  objectives  of  the  ongoing  initiative  to 
establish Capital Markets Union ('CMU'). Efficient and resilient post-trading systems and 
collateral markets are essential elements for the well-functioning of CMU. Effective and 
efficient EMIR rules contribute to achieving the objectives of CMU and to the Jobs and 
Growth agenda in line with the political priorities of the Commission. 

4.4.  Consistency of the objectives with fundamental rights 

The  EU  is  committed  to  high  standards  of  protection  of  fundamental  rights  and  is 
signatory  to  a  broad  set  of  conventions  on  human  rights.  In  this  context,  the  proposed 
objectives  as  discussed  above  are  not  likely  to  have  a  direct  impact  on  these  rights,  as 
listed in the main UN conventions on human rights, the Charter of Fundamental Rights 
of  the  European  Union  which  is  an  integral  part  of  the  EU  Treaties,  and  the  European 
Convention on Human Rights ('ECHR'). 

5.  POLICY OPTIONS AND ANALYSIS OF IMPACT 

5.1.  Methodology 

This  section  summarises  the  policy  options  and  their  impacts  on  stakeholders.  The 
analysis  of  policy options and the comparison  thereof is  grouped by how these  options 
relate to the problem drivers and respond to the problems identified in section 3. This is 
in  line  with  the  overall  approach  pursued,  as  set  out  in  section  1,  which  consists  in 
examining targeted amendments to EMIR that address specific issues that have given rise 
to concern, keeping in mind that the framework as such has not been put into question by 
any  of  the  stakeholders  and  that  the  limited  experience  with  its  application  (certain 
requirements are only being phased in now) is not a sufficient basis to consider a more 
far  reaching  overhaul.  EMIR  sets  out  requirements  for  clearing,  risk  mitigation  and 
reporting and regulates the activities of CCPs and of TRs. The problem drivers that have 
been  identified  are  (separately)  related  to  different  requirements  imposed  by  EMIR, 
concern  different  types  of  entities  and  can  therefore  be  addressed  independently  from 
each other. 

Particular  attention  in  the  selection  of  policy  options  to  be  examined  in  this  impact 
assessment  was  given  to  the  input  provided  by  public  and  private  stakeholders  in  the 
context of the public consultation on the EMIR Review and the Call for Evidence as well 
as the reports received pursuant to Article 85(1) of EMIR from ESMA, ESRB and ESCB. 
The ideas put forward were screened in order to establish whether it could in principle be 
reasoned that they addressed the problems identified and were in line with the approach 
of  proposing  targeted  amendments  to  EMIR  in  areas  where  the  need  for  such 
amendments had been demonstrated in a sufficiently robust way, keeping in mind that a 
more  general  overhaul  of  EMIR  could  only  be  considered  at  a  later  stage  when  more 
experience  with  the  application  of  all  requirements  would  be  available.  Certain  ideas 
advanced  by  stakeholders  were  not  included  as  policy  options  to  be  examined  in  the 

52 

 
 
present impact assessment as they were not sufficiently operational or went beyond the 
scope  of  the  initiative  (e.g.  the  proposals  to  modify  the  third  country  regime  and  of 
reconsidering institutional aspects relating to CCP colleges), or were opposed by public 
authorities  and  regulators  pointing  out  the  resulting  risks  attached  to  the  proposal  (e.g. 
facilitating  the  access  of  CCPs  to  central  bank  liquidity  facilities).  Other  suggestions 
raised  by  stakeholders  and  authorities,  relating  for  instance  to  the  clarification  of  the 
application  of  the  hedging/non-hedging  distinction,  require  to  be  further  examined  by 
European authorities at horizontal level as the overall EU financial services supervisory 
infrastructure is based on an horizontal Union approach. Initiatives across the  European 
Supervisory  Authorities,  and  in  particular  within  ESMA,  to  improve  supervisory 
convergence should help in that respect. 

Priority was also given to options which could help either pre-empt significant burdens 
or risks for financial stability or alleviate existing burdens without compromising EMIR's 
objective  to  increase  financial  stability.  For  instance,  the  clearing  obligation  for  PSAs 
will  apply  in  August  2018,  meaning  that,  should  this  not  be  the  favoured  option, 
alternatives  should  be  in  place  by  then.  Likewise,  the  clearing  obligation  for  small 
financials will soon start applying to NFCs and small financials. It should also be noted 
that,  according  to  the  recently  adopted  revised  ITS  on  trade  reporting,  the  deadline  for 
backloading historic trades expires in February 2019.  

The  policy  options  developed  consist  of  one  or  of  several  combined  measures.  The 
assessment weighs the additional costs or the cost reductions related to specific options 
and the effect they have on balance on reaching the EMIR objectives, thus contributing to 
financial  stability.  To  the  extent  possible,  administrative  and  compliance  costs  are 
quantified.  In  addition,  and  in  particular  where  available  data  sources  and  other 
limitations do not allow to quantify costs, impacts are assessed on the basis of qualitative 
criteria. 

When  comparing  the  options,  the  tables  illustrate  how  each  of  the  policy  options 
contributes to meeting the objectives in terms of effectiveness and their efficiency (cost-
effectiveness)  in  doing  so  when  compared  to  the  'Do  nothing'  option.  The  following 
schema  is  used:  0  (baseline  scenario,  no  policy  change),  ++  (strongly  positive 
contribution),  +  (positive  contribution),  --  (strongly  negative  contribution),  - (negative 
contribution),  ≈  (marginal/neutral  contribution),  ?  (uncertain  contribution),  n.a.  (not 
applicable) and 0 (neutral contribution).  

5.2.  Baseline scenario 

Maintaining the status quo would mean retaining the scenario described in the problem 
definition above and further elaborated as option 1 ("No policy action") for each area in 
which policy actions are considered. 

This would mean the following: 

-  removing  PSAs  from  the  scope  of  the  clearing  obligation,  given  that  PSAs  have  not 
been  subject  to  the  clearing  obligation,  as  the  Commission  has  extended  twice  the 
transitional exemption; 

- subjecting after full phase-in some non-financial counterparties (NFC+), even though 
they present limited systemic risk to the financial system, to all of the requirements of the 
EMIR clearing obligation; 

53 

 
 
- subjecting after full phase-in some (very) small financial counterparties, even though 
they present limited systemic risk to the financial system, to all of the requirements of the 
EMIR clearing obligation;  

- maintaining the current requirements of the EMIR reporting obligation, including 
in relation the quality of the data that TRs need to provide; 

- maintaining the current level of fines that ESMA can impose on TRs; and 

-  leaving  current  obstacles  to  access  central  clearing  untouched  and  maintaining 
uncertainty limiting the ability of counterparties to hedge their positions. 

5.3.  On  compliance  costs  that  in  a  number  of  cases  outweigh  prudential 

benefits 

5.3.1.  On  mandatory  clearing  and  bilateral  margin  requirements  that  do  not 

sufficiently take into account the features of certain participants 

5.3.1.1.  Pension scheme arrangements (PSAs) 

The  objective  is  to  reduce  unnecessary  administrative  burden  and  compliance  costs 
without putting financial stability at risk. To this end, the clearing obligation should be 
applied to PSAs in a more proportionate way.    

Policy option 

Description 

1. No policy action  

Remove PSAs from the scope of the clearing obligation. 

2. Submit PSAs to the clearing obligation   
and oblige CCPs to accept non-cash collateral  

3. Provide for a new transitional exemption  

Let the current transitional exemption lapse and amend 
EMIR to require CCPs to accept eligible non-cash 
collateral for certain market participants. 
Amend EMIR to extend the transitional exemption 
beyond August 2018, with regular reviews assessing 
progress in developing clearing solutions for PSAs.  

Option 1 - Remove PSAs from the scope of the clearing obligation 

The  baseline  scenario  consists  of  removing  PSAs  from  the  scope  of  the  clearing 
obligation,  given  that  PSAs  have  not  been  subject  to  the  clearing  obligation,  as  the 
Commission has extended twice the transitional exemption. 

A minority of PSAs have called for a permanent exemption from the clearing obligation, 
on the ground that (i) such an exemption would avoid disproportionate costs, and that (ii) 
PSAs would continue to be subject to risk-mitigation  obligations applying to  uncleared 
derivatives.  Regarding  (i),  removing  PSAs  from  the  scope  of  the  clearing  obligation 
would  avoid  that  PSAs  shift  a  part  of  their  assets  into  cash  in  order  to  meet  the  CCP 
variation call margins. This would therefore prevent an adverse impact on the retirement 
income  of  their  pensioners.  Regarding  (ii),  from  a  prudential  perspective,  the 
participation  of  PSAs  in  the  OTC  derivatives  market  would  remain  subject  to  the  risk-
mitigation and margins requirements for OTC transactions that are not centrally cleared. 
Option  1  would  also  not  prevent  PSAs  from  centrally  clearing  on  a  voluntary  basis, 
should clearing solutions emerge.  

However,  option  1  raises  several  concerns,  both  in  terms  of  consistency  with  EMIR's 
objective  to  encourage  central  clearing  and  in  terms  of  financial  stability.  First,  a 

54 

 
 
 
permanent  exemption  would  remove  regulatory  incentives  for  CCPs  to  explore  viable 
clearing  solutions  for  PSAs.  As  such,  option  1  would  be  inconsistent  with  EMIR's 
objective that 'the ultimate aim [for PSAs], however, is central clearing as soon as this is 
tenable'.  Second,  while  PSAs  enjoy  a  specific  risk  profile  subject  to  strict  investment 
policies, they are however active participants in the OTC derivatives market. Excluding 
them  from  the  scope  of  central  clearing  could  have  implications  in  terms  of  financial 
stability, as their OTC activities, which may include clearable instruments, would remain 
outside  of  central  clearing.  A  number  of  Member  States  expressed  concerns  that  a 
permanent  exemption  could  contribute  to  creating  a  two-tier  market  for  liquid  and 
standard  OTC  derivatives,  with  large  volume  of  such  derivatives  remaining  outside  of 
CCPs. Representatives of large PSAs also highlighted that a permanent exemption should 
be the option of last resort, as this would deprive PSAs from the benefits of the clearing 
market.  

Finally,  taking  into  account  the  broader  scope  of  the  clearing  obligation,  such  an 
exemption could also contribute to an uneven level playing field between other financial 
counterparties,  such  as  insurers,  that  may  also  have  difficulties  in  meeting  the  clearing 
obligation, but remain subject to the clearing obligation.   

Option 2 – Submit PSAs to the clearing obligation and oblige CCPs to accept non-cash 
collateral 

Submitting PSAs to the clearing obligation would not require any change to EMIR. The 
Commission  adopted  on  20  December  2016  a  delegated  act  extending  the  current 
transitional exemption until August 2018120. Beyond this date, the temporary exemption 
will automatically expire, and the clearing requirement will apply to PSAs, regardless of 
whether a technical clearing solution for PSAs has emerged.  

Requiring  PSAs  to  centrally  clear  would  reduce  the  systemic  risk  related  to  their 
activities  in  the  OTC  derivatives  market,  in  line  with  EMIR's  objective  to  increase  the 
stability  of  that  market.  However,  there  is  a  genuine  risk  that  there  will  be  no  viable 
technical solution for PSAs to post non-cash collateral in August 2018, raising concerns 
both  in  terms  of  cost-effectiveness  and  broader  financial  stability  issues.  When  the 
temporary  clearing  exemption  expires,  PSAs  will  have  either  to  (i)  increase  their  cash 
holdings instead of higher yielding assets that they commonly hold, such as government 
bonds,  with  a  negative  impact  on  the  retirement  incomes  of  pensioners  or  (ii)  rely  on 
bilateral  repo  markets  for  collateral  transformation,  potentially  creating  new  liquidity 
issues for PSAs in market stressed scenarios. Both scenarios imply significant costs that 
may outweigh the benefits of central clearing. 

Indeed, several PSAs representatives have stressed the negative impact of requiring PSAs 
to clear without a viable solution. A number of Member States, as well as the European 
Parliament121,  have  also  expressed  concerns  about  requiring  PSAs  to  clear  centrally 
before a viable solution is in place.  

As far as clearing solutions are concerned, a number of PSAs have suggested that CCPs 
could  accept  non-cash  collateral  for  variation  margin,  such  as  high-quality  government 
bonds,  in  order  to  allow  them  to  participate  in  central  clearing.  EMIR  already  enables 

120  Commission Delegated Regulation C(2016)8542 of 20 December 2016. 
121  European Parliament Resolution 2015/2106 (INI) of 19 January 2016, paragraph (19). 

55 

 
 
                                                 
CCPs  to  accept  highly-liquid  non-cash  collateral.  Article  46  of  EMIR  contains 
requirements on what type of collateral can  be considered highly liquid, including non-
cash collateral, such as government and high-quality corporate bonds and covered bonds. 
The  EU  adopted  in  December  2012  a  Delegated  Regulation  spelling  out  these 
provisions.122 However, as CCPs generally only accept cash as variation margin, it may 
be  necessary  to  go  a  step  further  and  amend  EMIR  to  require  CCPs  to  accept  eligible 
non-cash collateral for PSAs meeting certain conditions. 

On  the  one  hand,  this  requirement  would  help  meet  the  initial  objective  of  EMIR's 
transitional clearing exemption, by providing a solution ensuring a relatively smooth shift 
of PSAs to central clearing. 

On  the  other  hand,  requiring  CCPs  to  accept  non-cash  collateral  could  have  broader 
consequences that could negatively impact financial stability. In particular, the ESRB and 
ESMA have cautioned against measures that could weaken the financial soundness and 
robustness of CCPs in case the non-cash collateral would prove insufficiently liquid. This 
approach  also  raises  procyclicality  concerns.123  In  addition, 
tailoring  collateral 
requirements  to  the  specificity  of  PSAs  could  weaken  the  level-playing  field  vis-à-vis 
other market participants who may also face challenges in clearing centrally.  

Option 3 - Providing for a new transitional exemption 

Option 3 would provide a new transitional clearing exemption for PSAs, on the ground 
that no viable technical clearing solution has emerged to date. It would give more time to 
develop  technical  solutions  and  measures  to  facilitate  them  and  be  consistent  with 
EMIR's  objective  that  the  ultimate  aim  for  PSAs  is  central  clearing  as  soon  as  this  is 
feasible (Recital 26).  

On  the  one  hand,  option  3  would  acknowledge  that  the  7-year  clearing  exemption  for 
PSAs has not been as effective as intended, as the clearing obligation has only started to 
apply as of June 2016. It would also avoid an adverse impact on the retirement income of 
pensioners  and  on  market  liquidity.  In  addition,  this  option  would  satisfy  the  call  by 
several representatives of PSAs to extend the clearing exemption until a viable solution is 
found.  This  option  would  also  accommodate  concerns  by  the  European  Parliament  and 
by  several  Member  States  that  a  new  transitional  exemption  may  be  needed  to  find  a 
clearing  solution  for  PSAs  to  avoid  an  adverse  impact  on  the  retirement  income  of 
pensioners and on market liquidity. 

On  the  other  hand,  the  experience  of  the  last  five  years  indicates  that  the  prospect  of 
mandatory  clearing  has  not  created  a  sufficient  incentive  for  CCPs  to  develop  viable 
technical  solutions.  In  order  to  avoid  that  option  3  only  postpones  the  issue  further,  it 
could  be  necessary  to  consider  incentives  for  CCPs,  clearing  members  and  PSAs  to 
explore viable clearing solutions, and to regularly review progress towards that goal. For 
instance,  the  Commission's  recent  proposal  to  amend  the  Capital  Requirement 

122  Commission Delegated Regulation (EU) No 153/2013 of 19 December 2012, Official Journal of the 

European Union, L 52, 23 February 2013 

123  ESRB,  Report  on  the  efficiency  of  margining  requirements  to  limit  pro-cyclicality  and  the  need  to 
define additional intervention capacity in this area; ESMA, EMIR Review Report no.2 - Review on the 
efficiency of margining requirements to limit procyclicality. 

56 

 
 
                                                 
Regulation124 might help in the development of solutions for central clearing. It proposes 
not  to  include  under the leverage ratio  the provision of clearing services, which should 
alleviate the costs of offering those services. Representatives both from PSAs and from a 
number of Member States consider that this may provide an incentive to develop clearing 
solutions  for  PSAs.  In  addition,  another  incentive  towards  central  clearing  solutions 
could stem from the application of the margin requirements for bilateral clearing, which 
the  Commission  adopted  in  October  2016.  Those  will  cover  PSAs  as  of  March  2017. 
Although variation margins will also need to be posted when clearing on a bilateral level, 
PSAs  will  be  able  to  post  non-cash  collateral,  meaning  that  no  opportunity  costs  arise. 
However, the margin requirements are expected to increase the price of bilateral clearing 
and  hence  narrow  the  cost  differential  between  cleared  and  non-cleared  derivative 
contracts  in  the  future.  Taking  into  account  the  upcoming  changes  to  the  regulatory 
landscape,  the  Commission  could  also  consider  bringing  PSAs  and  CCPs  together  to 
develop a coordinated viable solution, accommodating the various constraints at play.  

To  properly  measure  the  impact  of  these  incentives  on  the  development  of  clearing 
solutions for PSAs, and assess whether further policy measures are needed, a mechanism 
to extend the new temporary exemption could be introduced, subject to a review based on 
input  from  the  ESAs  and  the  ESRB,  providing  greater  flexibility  in  case  more  time  is 
needed to develop PSAs clearing solutions, while ensuring that central clearing remains 
the ultimate objective for PSAs.  

Table 2. Comparison of policy options against effectiveness and efficiency criteria 

EFFECTIVENESS 

        Objectives 

Objective 1 

Objective 2 

Objective 3 

Policy  
option  

Increase proportio-
nality of rules without 
putting financial 
stability at risk 

Increase transpa-
rency of OTC 
derivatives positions 
and exposures 

Reduce 
impediments 
to access to 
clearing 

EFFICIENCY 

(cost-
effectiveness) 

0 

0 

0 

Option 1 
No policy change 
PSAs not subject to 
the clearing 
obligation 
Option 2 
PSAs subject to the 
clearing  obligation 
and CCPs required 
to  accept  non-cash 
collateral  
Option 3 
New 
exemption  
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly 
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable 

transitional 

++ 

++ 

--  

+ 

+ 

-- 

+ 

≈ 

0 

124  Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 
No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and 
eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures 
to  collective  investment  undertakings,  large  exposures,  reporting  and  disclosure  requirements  and 
amending Regulation (EU) No 648/2012. 

57 

 
 
 
 
 
 
 
 
                                                 
The preferred option is option 3. This is the option that is the least likely to put financial 
stability  at risk, as it maintains the ultimate objective for PSAs to  participate in  central 
clearing, without creating new risks relating to market liquidity or procyclicality (option 
2).  This  option  is  also  more  proportionate  than  option  2  as  it  takes  into  account  the 
specific  risk  profile  of  PSAs,  which  are  subject  to  strict  mandates  governing  their 
investment  management,  while  not  ruling  out  their  participation  in  central  clearing 
(option 1). Option 3 also helps avoid adverse costs for policy holders and provide scope 
for a cost-effective clearing solution in the medium-term. 

The  operational  objective  corresponding  to  the  preferred  option  is  the  development  of 
solutions to facilitate the participation of PSAs in central clearing. 

5.3.1.2.  Non-Financial Counterparties 

Policy option 

Description 

1. No policy action 
2. Reduce the scope of the clearing obligation 
for NFCs 
3. Exempt NFCs from clearing and bilateral 
margin requirements 

The baseline scenario applies. 
Introducing a higher clearing threshold that would only 
place the largest NFCs in scope of clearing requirements. 
Removal of the threshold and the concept of 'NFC+' and 
removal of the requirement for NFCs to exchange 
collateral. 

Option 1 - No policy action 

In the absence of any policy action, the baseline scenario applies. NFCs would continue 
to be subject to all the requirements set out in EMIR. The advantage of this option is that 
it  is  currently  understood  by  market  participants.  It  ensures  that  only  non-hedging 
contracts  that  create  risk  count  towards  the  determination  of  whether  an  NFC  is 
systemically  important.  This  excludes  NFCs  that  genuinely  only  carry  out  hedging 
activity,  which  is  prudent  as  these  firms  do  not  cause  systemic  risk.  However,  NFCs 
which  exceed  a  certain  volume  of  activity  in  non-hedging  derivatives  transactions  are 
considered  as  presenting  the  same  systemic  risk  profile  as  financial  counterparties  and 
are therefore subject to the same requirements as financial counterparties. 

Option 2 – Reduce the scope of the clearing obligation for NFCs 

This  option  involves  introducing  a  higher  threshold  that  would  only  place  the  largest 
NFCs in scope of clearing requirements. One way of doing this is by applying the same 
clearing threshold as in the baseline scenario, but only requiring that those asset classes 
for which the thresholds have been exceeded and for which there is a clearing obligation 
should  be  subject  to  the  clearing  obligation.  It  recognises  that  in  general  NFCs  are 
significantly  active  in  only  a  few  asset  classes,  very  often  only  one.  This  option 
introduces more proportionality and reduces the number of NFCs subject to the clearing 
obligation. This is particularly the case today as NFCs are mostly active in Commodity 
derivatives,  an  asset  class  for  which  there  is  so  far  no  clearing  obligation.  NFCs 
exceeding  a  certain  volume  of  activity  in  non-hedging  derivatives  would  still  be 
considered as having the same profile as financial counterparties and would therefore be 
subject  to  the  same  requirements  as  financial  counteparties,  in  particular  the  margin 
requirements. 

58 

 
 
 
 
 
The advantage of this option is that it would recognise the ability for NFCs to distinguish 
between hedging and non-hedging activities and simplify their clearing requirement. By 
imposing the clearing obligation only in the asset class or classes for which the clearing 
threshold has been breached and for which a clearing obligation exists, NFCs would only 
have to negotiate clearing arrangements for that particular asset class or classes, reducing 
the  legal  and  operational  burden.  However,  as  the  bilateral  margin  requirement  would 
still apply, there would be an appropriate degree of systemic risk mitigation. 

This  option  was  supported  by  a  number  of  stakeholders  in  the  public  consultation,  in 
particular European associations125 representing corporates. 

Option 3 - Exempt NFCs from clearing and bilateral margin requirements 

This  option  would  imply  that  only  reporting  requirements  would  apply  to  NFCs.  The 
advantage is that it would lower the burden on all NFCs, meaning that costs associated 
with determining whether an NFC is above or below the threshold would cease and the 
costs of providing collateral would also be removed. This option is therefore the one that 
most closely meets the objective of reducing burdens on corporates. As the ESMA report 
identified  that  contracts  with  all  NFCs  only  represent  a  small  proportion  of  the  overall 
number of contracts, the impact on systemic risk may be limited. However, this would be 
a deregulatory measure that is not justified by market developments since EMIR has been 
introduced, as there has been no evidence subsequently that suggests that these contracts 
are sufficiently safe that they can be subject to neither clearing nor margin requirements. 
This option is supported by non-financial counterparties (in particular firms dealing with 
commodities) mainly based on the argument that NFCs only act on the OTC derivatives 
market for  hedging  purposes  and do not  add systemic risk. However, this  option  is not 
supported by financial regulators, given the fact that corporates deal with huge volumes 
of  derivatives  and  not  applying  any  risk-mitigation  technique  could  entail  important 
financial risks to their counterparties and would also reduce the level of liquidity in the 
relevant derivatives markets. 

Table 3. Comparison of policy options against effectiveness and efficiency criteria 

EFFECTIVENESS 

        Objectives 

Objective 1 

Objective 2 

Objective 3 

EFFICIENCY 

(cost-
effectiveness) 

Policy  
option  

Option 1 
No policy change 

Option 2 
Reduce the scope of 
the 
clearing 
requirements 
Option 3 
Exempt  NFCs  from 
clearing and margin 
requirements  

Increase proportio-
nality of rules without 
putting financial 
stability at risk 

Increase transpa-
rency of OTC 
derivatives positions 
and exposures 

Reduce 
impediments 
to access to 
clearing 

0 

++ 

- 

0 

≈ 

≈ 

0 

+ 

- 

0 

+ 

- 

125 Including the European Association of Corporate Treasurers and the Joint Energy Associations Group. 

59 

 
 
 
 
 
 
 
 
                                                 
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly 
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable 

The preferred option is option 2. This option is least likely to put financial stability at risk 
as it does not remove the obligation to exchange variation margin for NFC+s and initial 
margin for those NFC+s that are above the threshold of €8bn introduced in the margins 
rules. Most Member States consider that it is necessary to monitor the appropriateness of 
the  current  thresholds,  whereas  option  3  would  cause  lots  of  contracts  to  be  subject  to 
neither  clearing  nor  margin  obligations.  Option  2  is  preferable  to  option  1,  despite  the 
fact that a few Member States would support it, as it introduces more proportionality in 
how  rules  are  applied  to  NFCs.  A  lot  of  NFCs  would  be  able  to  exchange  margin 
bilaterally  in  lieu  of  having  to  centrally  clear  their  contracts.  This  would  reduce 
compliance costs where those firms have difficulty in accessing clearing. 

The  preferred  option  corresponds  to  the  operational  objective  of  better  adjusting  the 
clearing requirements with a view to reducing unnecessary compliance costs that are not 
justified by financial stability requirements. 

5.3.1.3.  Small Financial Counterparties 

Policy option 

Description 

1. No policy action 
2. Narrower definition of small financial 
counterparties than currently defined as 
Category 3 

3. Exempt all Category 3 financial 
counterparties from mandatory clearing 

The baseline scenario applies. 
Those very small financial counterparties for which 
central clearing is not economically feasible are exempted 
from the clearing obligation that stays in place for the 
other small financials. 
All small financials as currently defined as Category 3 are 
exempted from mandatory clearing. 

Option 1 - No policy action 

In the absence of any policy action, the baseline scenario applies. The advantage of this 
option is that it is currently understood to market participants. It ensures that all financial 
counterparties  irrespective  of  their  volume  of  activity  are  subject  to  the  clearing 
obligation.  This  ensures  the  widest  possible  scope  of  application  of  the  clearing 
obligation  as  far  as  financial  counterparties  are  concerned.  Thus,  each  transaction  of  a 
financial  counterparty  and,  therefore,  each  related  risk  of  a  financial  counterparty  is 
captured by the clearing obligation. Furthermore, keeping the clearing obligation in place 
for  all  financial  counterparties  while  providing  for  different  compliance  periods  for 
counterparties  with  a  phased-in  implementation  schedule  with  regard  to  the  volume  of 
their  activities  keeps  CCPs,  clearing  members  and  their  clients  incentivised  to  develop 
solutions to on-board small financial counterparties in due time. 

However,  ESMA's  assessment  of  the  access  of  small  financial  counterparties  to  central 
clearing shows that at least for the smaller of the small financial counterparties the use of 
central clearing is not only a disproportionate burden, but impossible for them in 2017. 
Where  the  reason  for  this  impossibility  is  that  central  clearing  is  not  economically 
feasible because of a (very) small volume of activity, this hurdle will stay in place even 
after  the  longer  phase-in  period  proposed  by  ESMA  ends.  To  impose  a  clearing 
obligation  on  such  (very)  small  financial  counterparties  would  then  mean  to  require 
something that is not doable for the addressees of that obligation.  

Option 2 – Provide a narrower definition of the category of small financial counterparties 

60 

 
 
 
A  narrower  definition  of  what  constitutes  a  small  financial  counterparty  that  would  be 
subject to the clearing obligation could be set to capture only those firms with a certain 
volume of activity smaller than the current threshold of EUR 8bn as defined in the three 
Commission  Delegated  Regulations  on  the  clearing  obligation  for  Category  3 
counterparties. The new threshold should be calibrated based on clear criteria set out in 
the legislation to determine the volume of activity above which the mandatory clearing 
applies,  taking  into  consideration  the  type  of  financial  institution  and  the  type  and 
volume  of  derivative trading  with  the  objective  of  not  damaging  financial  stability. All 
financial counterparties would stay subject to the margin requirements (covering both the 
exchange of variation margin and, where above the EUR 8 billion threshold set up in the 
margin  rules,  the  exchange  of  initial  margin);  therefore  no  additional  financial  stability 
risk would be created for the financial system. 

The advantage of this option is that it allows lightening the burden of those (very) small 
financial counterparties for which central clearing is not economically feasible because of 
their  small  volume  of  activity,  while  keeping  the  largest  of  the  small  financial 
counterparties  obliged  to  clear  once  the  phase-in  period  set  in  the  regulatory  technical 
standards ends.  Such an  option would remove  the difficulties to  find access  to clearing 
for those counterparties that are not able to clear because their OTC derivatives portfolio 
is too small, but keep most of those counterparties bound by the clearing obligation that 
fall in Category 3126 of the existing Commission Delegated Regulations on the clearing 
obligation which are still big enough to fulfil the clearing obligation. This keeps CCPs, 
clearing  members  and  their  clients  incentivised  to  develop  solutions  to  on-board  small 
financial  counterparties  which  remain  obliged  to  centrally  clear  in  due  time.  When 
developed,  these  solutions  may  attract  even  those  financial  counterparties  that  are  not 
anymore  obliged  to  centrally  clear  but  find  it  more  attractive  to  use  central  clearing 
voluntarily as they remain subject to bilateral margin and reporting requirements which 
can become even more costly than central clearing depending on the trading volume of 
the counterparty. 

Most  EU  regulators  have  called  for  the  need  to  introduce  further  proportionality  in  the 
application  of  the  rules,  in  particular  taking  into  consideration  the  difficulties  to  have 
access  to  clearing  and  the  fact  that  in  other  jurisdictions  the  very  small  financial 
counterparties are exempted from clearing.  

Option 3 - Exempt all Category 3 financial counterparties from mandatory clearing 

An  exemption  from  mandatory  clearing  would  imply  that  only  bilateral  margins  and 
reporting requirements would apply to Category 3 firms. The advantage of this option is 
that  it  uses  the  existing  definition  of  small  financials  that  is  currently  understood  to 
market participants. However, as option 3 excludes all small financials from the clearing 
obligation  in  comparison  with  option  2,  it  would  dis-incentivise  the  development  of 
solutions  to  foster  the  access  to  central  clearing  for  small  financials.  As  according  to 

126  These  are  financial  counterparties  (and  certain  funds  which  are  classified  as  non-financial 
counterparties)  belonging  to a  group  whose  aggregate  positions  in  OTC derivatives  are  EUR  8bn  or 
below  according  to  Commission  Delegated  Regulation  (EU)  2015/2205  of  6  August  2015 
supplementing  Regulation  (EU)  No  648/2102,  OJ  L  314,  1.12.2015,  p.  13;  Commission  Delegated 
Regulation (EU) 2016/592 of 1 March 2016 supplementing Regulation (EU) No 648/2012, OJ L 103, 
19.4.2016,  p.  5,  and  Commission  Delegated  Regulation  (EU)  2016/1178  supplementing  Regulation 
(EU) No. 648/2012, OJ L 195, 20.7.2016, p. 3. 

61 

 
 
                                                 
ESMA's  assessment, access to  central  clearing is  impossible only  for some, but  not  for 
all, small financials because of their limited volume of activity, option 3 would exempt 
more small  financials from the clearing obligation than is  necessary to achieve a better 
calibration  of  the  rules  and  could  thus  hinder  financial  stability.  Furthermore  Option  3 
would  create  an  un-level  playing  field  in  the  case  where,  one  way  or  another,  non-
financial counterparties stay subject to the clearing obligation. 

Table 4. Comparison of policy options against effectiveness and efficiency criteria 

EFFECTIVENESS 

        Objectives 

Objective 1 

Objective 2 

Objective 3 

EFFICIENCY 

(cost-
effectiveness) 

Policy  
option  

Option 1 
No policy change 

Increase proportio-
nality of rules without 
putting financial 
stability at risk 

Increase transpa-
rency of OTC 
derivatives positions 
and exposures 

Reduce 
impediments 
to access to 
clearing 

0 

0 

0 

0 

++ 

Option 2 
Narrower 
definition  of  small 
financial 
counterparties 
Option 3 
Exemption  of  all 
small  financials  as 
currently  defined 
as Category 3 
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly 
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable 

-- 

-  

+ 

+ 

≈ 

≈ 

- 

The  preferred  option  is  option  2.  This  option  keeps  a  bigger  part  of  the  financial 
counterparties  that  are  currently  defined  as  small  obliged  to  clear  than  option  3,  while 
taking  into  consideration  the  persisting  hurdles  to  central  clearing  for  (very)  small 
counterparties.  Therefore,  option  2  is  the  most  balanced  option.  It  keeps  as  many 
counterparties  and  as  much  risk  as  possible  subject  to  the  clearing  obligation,  but 
increases proportionality by lightening the burden for those financial counterparties that 
have  no  access  to  central  clearing  because  it  is  not  economically  feasible  for  them  to 
clear. No increase in financial stability risk would be introduced into the financial system 
because  the  rules  on  margins  would  still  apply  to  the  small  financial  counterparties.  In 
addition,  most  Member  States  consider  that  there  is  a  need  to  redefine  the  small 
financials category.    

The  preferred  option  corresponds  to  the  operational  objective  of  better  adjusting  the 
clearing requirements with a view to reducing unnecessary compliance costs that are not 
justified by financial stability requirements. 

5.3.2.  On  excessively  burdensome  reporting  requirements  applying 

to  certain 

transactions 

Policy option 

Description 

1. No policy action 
2. Fine-tuning the rules in the identified 
problem areas 

The baseline scenario applies. 
Better calibrate some of the requirements: elimination of the 
requirement to report historic trades; to exempt intragroup 
transactions in which one of the counterparties is an NFC from 

62 

 
 
 
 
 
 
 
 
3. Significantly restructuring or 
removing certain reporting requirements 

the reporting obligation; to remove from the counterparties the 
obligation to report ETD transactions and give it to the CCPs; 
to alleviate the burden of EMIR reporting for small NFC. 
The requirements to report historic trades and intragroup 
transactions are eliminated, the reporting requirement for 
ETDs is eliminated by using the data reported under MiFID 
II/MiFIR, double-sided reporting is replaced with single-sided 
reporting according to appropriate reporting hierarchies. 

Option 1 - No policy action 

In the absence of any policy action, the baseline scenario applies. The advantage of this 
option  is  that  it  provides  legal  certainty  to  market  participants,  as  the  reporting  rules 
remain  unchanged.  To  a  certain  extent,  some  of  the  respondents'  concerns  (concerning 
insufficiently  clear  and  harmonised  reporting  rules)  will  be  addressed  by  recent  and 
upcoming changes to technical standards. Moreover, the investments already undertaken 
by  counterparties  to  implement  double-sided  reporting  will  be  effectively  utilised. 
However,  the  drawback  of  remaining  with  the  current  rules  is  that  all  of  the  other 
excessive costs and burdens will continue to be in place, and that the quality of data will 
remain suboptimal. EMIR reporting rules will continue to exist in parallel – but will not 
be  aligned  –  with  SFTR  rules.  There  will  also  continue  to  be  instances  of  redundant 
reporting, as with the ETDs.  

Option 2 – Fine-tuning the rules in the identified problem areas 

In light of the work already underway in ESMA to clarify and harmonise the reporting 
rules  and  requirements,  and  with  a  view  to  limiting  the  modifications  to  the  reporting 
rules  to  areas  most  urgently  requiring  action  while  ensuring  that  data  necessary  for  the 
monitoring  of  the  market  by  authorities  continues  to  be  reported  with  the  minimum 
amount  of  disruption,  Option  2  focuses  on  four  distinct  areas:  (i)  the  obligation  to 
'backload'  historic  trades;  (ii)  intragroup  transactions;  (iii)  exchange-traded  derivatives; 
and (iv) reporting by smaller NFCs. 

With regards to the 'backloading' requirement, under this option, the obligation to report 
historic  trades  would  be  eliminated.  The  advantage  of  removing  this  obligation  would 
significantly  reduce  costs  and  burdens  on  counterparties  and  eliminate  the  potentially 
insurmountable obstacle of having to report data which may simply not be available. It is 
important to note that SFTR does not contain a 'backloading' requirement for securities 
financing  transactions,  so  this  option  would  have  the  additional  benefit  of  aligning  the 
two pieces of legislation. The drawback is that the removal of the obligation to 'backload' 
trades  would  imply  some  loss  of  data  for  the  supervisory  authorities,  but  given  that 
virtually no such data has yet been reported and in light of the claims that it would not be 
useful in any case, the negative impact of such a decision would likely be limited. The 
vast majority of contributors127 to the EMIR public consultation suggested a removal of 
this obligation. This suggestion also found broad consensus among the Member States. 

127  Including  a  large  number  of  associations  such  as  the  European  Fund  and  Asset  Management 
Association  (EFAMA),  PensionsEurope,  the  European  Association  of  Public  Banks  (EAPB),  the 
European Association of Co-operative Banks (EACB), the Managed Funds Association, FIA Europe, 
the  International  Swaps  and  Derivatives  Association  (ISDA),  the  Commodity  Markets  Council  – 
Europe (CMCE), etc. 

63 

 
 
 
                                                 
Concerning the requirement to report intragroup transactions, this option envisages that 
any  intragroup  transactions  in  which  one  of  the  counterparties  was  an  NFC  would  be 
exempted  from  the  reporting  obligation.  Given  the  nature  of  such  trades,  such  an 
approach  would  have  the  advantage  of  significantly  reducing  the  costs  and  burdens  of 
reporting  for  those  counterparties  which  are  the  most  disproportionally  affected  by  the 
requirement.  In  terms  of  disadvantages,  there  would  be  a  very  limited  loss  of  data,  but 
given  that  intragroup  trades  with  NFCs  by  their  very  nature  have  a  limited  impact  on 
systemic risk and that the vast majority of intragroup trades would still be reported, the 
impact on the ability to monitor systemic risk in the OTC  derivative markets would be 
minimal. The vast majority of respondents128 to the EMIR public consultation called for 
completely  removing  the  obligation  to  report  intragroup  transactions,  with  a  small 
number  suggesting  limiting  the  exemption  to  NFCs  or  even  NFCs-.  Some  financial 
regulators called for the exemption of NFCs. The ECB and ESMA called for a cautious 
approach so as not to lose too much data. 

Concerning  the  EMIR  requirement  to  report  ETDs,  this  option  would  remove  the 
obligation  to  report  ETD  transactions  from  the  counterparties  and  place  it  on  the  CCP 
instead. Since a CCP is involved in every ETD transaction, CCPs by definition have in 
their  possession  a  significant  amount  of  data  pertaining  to  these  transactions.  The 
principal advantage of this approach is that, overall, the reporting of ETDs will be greatly 
simplified  without  a  negative  impact  on  the  transparency  of  the  derivatives  market. 
Although  the  CCPs  will  face  a  slightly  higher  reporting  burden,  given  that  they  are 
already  required  to  report  all  centrally-cleared  derivative  transactions  under  EMIR,  the 
additional  burden  will  be  minimal.  At  the  same  time,  as  far  as  ETDs  are  concerned,  it 
will  be  eliminated  for  all  other  counterparties.  While  for  the  moment,  CCPs  may  not 
possess all data on ETD transactions required as part of the EMIR reporting framework, 
this should change as of January 2018, when a requirement will come into force for all 
exchange-trade derivatives to be cleared by CCPs. As such, there is no risk of a loss of 
data. Several industry associations129 and financial regulators identified the reporting of 
ETDs  as  an  issue.  Some  respondents  suggested  completely  exempting  ETDs  from  the 
reporting  obligation  and  others  suggested  moving  to  single-sided  reporting  for  these 
types  of  transactions.  Several  financial  regulators  have  also  suggested  single-sided 
reporting for ETDs. The ECB and ESMA called for maintaining the reporting obligation 
for ETDs on account of the need for the data to correctly monitor the market.    

Finally,  this  option  would  modify  the  reporting  rules  so  that  in  cases  of  transactions 
between a financial counterparty and a smaller NFC, the financial counterparty would be 
required to report the transaction on behalf of both counterparties. This approach would 
have  the  advantage  of  significantly  reducing  the  burdens  of  reporting  for  those 
counterparties for which it is most significant, without leading to any loss of data. While 
the  automatic  data  quality  check  would  disappear  for  these  transactions,  only  a  limited 
proportion of trades would be affected. In addition, this approach would have the benefit 
of aligning at a certain extent the reporting rules in EMIR and SFTR. Most respondents 

128  Including  several  associations  such  as  the  European  Banking  Federation  (EBF),  the  Managed  Funds 
Association, FIA Europe, the International Swaps and Derivatives Association (ISDA), the Coalition 
for Derivative End-Users, the Commodity Markets Council – Europe (CMCE), EURELECTRIC, etc. 

129  For  example  the  European  Association  of  Co-operative  Banks  (EACB),  the  European  Banking 
Federation  (EBF),  the  International  Swaps  and  Derivatives  Association  (ISDA),  the  European 
Association of CCP Clearing Houses (EACH), FIA Europe, etc.  

64 

 
 
                                                 
to the public consultation (including almost 40 industry associations) raised the issue of 
the excessive burden of a double-sided reporting system, in particular for non-financials. 
Several  financial  regulators  also  considered  that  it  would  be  appropriate  to  reduce  the 
burden of reporting for small NFCs, taking inspiration from the SFTR approach. 

Taken  together,  the  modifications  considered  under  Option  2  would  on  balance  reduce 
the costs and burdens of reporting for all entities – significantly so for those, like smaller 
NFCs, for which that burden is greatest – while reducing the loss of data to a minimum. 

Option 3 – Significantly restructuring or removing certain reporting requirements  

This  option  implies  a  more  radical  approach  to  reforming  trade  reporting  rules,  in  that 
some  of  the  current  requirements  would  be  significantly  amended  and  others  removed 
entirely. 

With  respect  to  the  'backloading'  obligation,  it  would  still  be  removed  as  in  Option  2, 
with the same positive and negative effects as identified above. 

Concerning ETD transactions, this option proposes to eliminate the reporting requirement 
for  ETDs  under  EMIR  and  use  the  data  provided  under  the  MiFID  II/MiFIR  rules  for 
reporting ETDs instead. This approach would be neutral in terms of reducing reporting 
overall  burdens,  as  MiFID  II/MiFIR  currently  exempts  ETDs  which  have  already  been 
reported to a trade repository under EMIR from having to be reported again under MiFID 
II/MiFIR. As such, the approach would simply move the obligation from one framework 
to  another.  On  the  other  hand,  there  would  be  several  important  disadvantages.  Firstly, 
the type of data collected under the two regimes is very different – while EMIR focuses 
on the details of the financial contract required for the monitoring of systemic risk, the 
focus  of  MiFID  II/MiFIR  reporting  is  much  more  on  data required  for the  detection  of 
market abuse. Secondly, MiFID II/MiFIR does not require data to be reported to a Trade 
Repository but rather directly to the national competent authorities. As such, this option 
implies  either  a  significant  loss  of  data  which  would  negatively  impact  the  ability  to 
monitor  systemic  risk  in  derivative  markets,  or  otherwise  the  need  to  introduce 
significant  amendments  to  MiFID  II/MiFIR  and  various  corresponding  technical 
standards.  This  solution  would  therefore  necessitate  changes  which  would  be  quite 
burdensome  for  many  market  actors  without  ensuring  that  an  equivalent  data  quality 
could be maintained. 

Option 3 would also exempt all intragroup transactions from having to be reported under 
EMIR. Such a modification would have the advantage of significantly reducing the costs 
and burdens of reporting for those counterparties which engage in intragroup derivatives 
transactions.  However,  since  the  number  and  volume  of  intragroup  transactions  carried 
out by financial entities is understood to be quite high, exempting intragroup transactions 
carried  out  by  financials  counterparties  –  even  smaller  ones  –  would  result  in  a  very 
significant  loss  of  data,  and  would  therefore  have  important  negative  consequences  for 
authorities' ability to monitor risks in the OTC derivative market.  

Finally, this option would replace the current double-sided reporting system with single-
sided reporting for all types of transactions, while at the same time specifying or setting 
out  rules  to  define  which  counterparty  would  have  the  obligation  to  report  the 
transaction. The main advantage of a move to general single-sided reporting under EMIR 
is that it would reduce costs and burdens for those counterparties which would no longer 
have  to  report  the  transaction.  However,  this  advantage  would  be  fully  neutralised  by 
several  negative  side-effects.  The  move  to  single-sided  reporting  would  remove  the 
automatic data quality check effect of reporting by both sides to a transaction, risking a 

65 

 
 
significant deterioration of data quality and thereby putting into question its usefulness to 
supervisors. This in turn implies a reduced ability of these authorities to monitor systemic 
risks in derivative markets. New means of verifying the correctness of data might need to 
be devised, presenting the potential risk of increasing costs and burdens for the reporting 
counterparty,  for  supervisors,  and  for  ESMA.  Furthermore,  if  the  rules  for  determining 
which  counterparty  should  report  the  transaction  are  not  sufficiently  well  defined  or 
unclear, some of the transactions may go unreported, as both counterparties will be of the 
opinion  that  the  other  one  should  report  the  trade.  This  would  have  a  very  detrimental 
effect  on  the  transparency  of  OTC  derivatives  markets.  Finally,  the  investments 
undertaken to build up reporting systems by those counterparties which would no longer 
be required to report would effectively have been wasted. Concerning the outcome of the 
public  consultation,  several  stakeholders  called  for  the  move  towards  single-sided 
reporting,  but  financial  regulators  considered  that  all  the  necessary  data  to  fulfil  their 
tasks to monitor market risk would not be available if such a change was introduced. 

Overall,  the  package  of  changes  considered  as  part  of  Option  3  would  significantly 
reduce  the  costs  and  burdens  of  the  requirement  to  report  OTC  derivative  transactions, 
but the level of loss of data in which they would result would be very significant, putting 
into question the representativeness – and therefore the usefulness for the purposes of the 
monitoring of market risk – of the residual data which would continue to be reported. In 
addition,  there  would  be  much  less  certainty  as  to  the  quality  and  completeness  of  the 
data  which  were  still  being  reported,  as  the  automatic  check  function  of  double-sided 
reporting would disappear. 

Table 5. Comparison of policy options against effectiveness and efficiency criteria 

EFFECTIVENESS 

        Objectives 

Objective 1 

Objective 2 

Objective 3 

EFFICIENCY 

(cost-
effectiveness) 

Policy  
option  

Option 1 
No policy change 

Increase proportio-
nality of rules without 
putting financial 
stability at risk 

Increase transpa-
rency of OTC 
derivatives positions 
and exposures 

Reduce 
impediments 
to access to 
clearing 

0 

0 

0 

0 

- 

++ 

Option 2 
the 
Fine-tuning 
rules 
the 
in 
identified  problem 
areas 
Option 3 
Significantly 
restructuring 
removing 
reporting 
requirements 
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly 
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable 

or 
certain 

n.a. 

n.a. 

++ 

-- 

≈ 

- 

The  preferred  option  is  option  2.  This  option  will  significantly  increase  the 
proportionality of the reporting obligations with respect to the baseline scenario, while its 
impact  on  the  transparency  of  OTC  derivatives  positions  will  be  only  marginally 
negative. As such, Option 2 does not in any way put financial stability at risk. Option 3, 
on the other hand, is neutral at best in terms of its impact on the proportionality of rules, 
as the ability of relevant authorities to adequately monitor risk in OTC derivative markets 

66 

 
 
 
 
 
 
 
 
would be diminished due to the significant loss of data (i.e. a strongly negative impact on 
transparency)  and  the likely drop in the quality  of data  which this option would imply. 
Finally,  Option  3  would  be  less  cost-efficient  due  to  the  additional  procedures  which 
would need to be put in place to verify the correctness of data further to a move to single-
sided  reporting.  For  these  reasons,  while  Option  2  would  be  an  improvement  on  the 
baseline  scenario,  Option  3,  on  the  contrary,  would  result  in  a  worse  situation  than  at 
present. 

In  terms  of  the  operational  objective  to  be  pursued,  the  preferred  option  aims  at  better 
adjusting  the  reporting  requirements  with  a  view  to  reducing  unnecessary  compliance 
costs and administrative burden that are not justified by financial stability requirements. 

5.3.3.  Overview of preferred options relating to compliance costs 

Table 6 below summarises the preferred options relating to compliance costs and shows 
how they relate to each other. 

Clearing 
obligation 

Operational 
risk-mitigation 
techniques for 
uncleared OTC 
derivatives 
Variation 
Margin 
requirements 
Initial Margin 
requirements 
(when OTC 
derivatives 
uncleared 
activities are 
above EUR 8 bn 
in gross notional 
outstanding 
amounts) 
Reporting of all 
derivative 
contracts 

FC 

SFC 

PSAs 

NFC+  

NFCs- 

Yes 

No 

Transitional 
exemption 

Only in 
relevant 
asset class 

No 

Yes 

Yes 

Yes 

Yes 

Yes (except 
daily 
valuation) 

Yes 

Yes 

Yes 

Yes 

No 

Yes 

Yes 

Yes 

Yes 

No 

Yes 
(IGTs and 
double-sided 
reporting) 

Yes 
(IGTs and 
double-sided 
reporting) 

Yes 
(IGTs and 
double-sided 
reporting) 

Yes 
(double-
sided 
reporting) 

Yes 
(reporting by 
FCs when 
transacting 
with NFCs) 

5.4.  On insufficient transparency of OTC derivatives positions and exposures 

5.4.1.  Trade repositories – insufficient quality of data and difficulties of data use 

Policy option 

Description 

1. No policy action 
2. Introduce new TR requirements and 
expand the scope of technical standards to 

The baseline scenario applies. 
The scope of technical standards is expanded to allow for 
the harmonisation of the form of the reports, the standards 

67 

 
 
 
 
 
 
 
 
further harmonise the reporting rules and 
procedures and ensure the transparency and 
quality of data 

3. Expand ESMA's mandate to regulate the 
TRs 

to be used, and the methods and arrangements for reporting, 
as well as for the harmonisation of TR procedures for the 
validation and reconciliation of data. TRs are required to 
grant counterparties access to data reported on their behalf. 
In addition to all elements of Option 2, ESMA is granted 
additional powers to regulate TRs (e.g. requirement for TRs 
to submit periodic information, simplifying procedures for 
on-site inspections, expanding enforcement powers). 

Option 1 - No policy action 

In the absence of any policy action, the baseline scenario applies. The advantage of this 
scenario is that it provides a certain amount of legal certainty to stakeholders, in that the 
outlines of ESMA's mandate for developing technical standards remains unchanged and 
no  new  burdens  are  placed  on  any  of  the  stakeholders.  The  disadvantages  include  a 
continuing  suboptimal  level  of  data  quality  and  data  transparency,  principally  due  to 
imprecise rules and procedures, a lack of sufficient guidance in the absence of a sound 
legal  basis  for  issuing  it,  and  lack  of  clarity  as  to  the  allocation  of  responsibility  for 
verifying, correcting, and reconciling reported data. The ability of authorities to monitor 
systemic risk in OTC derivative markets would continue to face hurdles.     

Option 2 – Introduce new TR requirements and expand the scope of technical standards 
to further harmonise the reporting rules and procedures and ensure the transparency and 
quality of data 

This  option  would  involve  two  related  sets  of  amendments.  Firstly,  the  scope  of  the 
technical standards to be developed by ESMA would be expanded to allow for the further 
harmonisation of the reporting rules and requirements (including the form of the reports, 
the standards to be used, and the methods and arrangements for reporting, as well as the 
harmonisation  of  the  procedures  to  be  applied  by  trade  repositories  to  validate  the 
reported  data  as  to  its  completeness  and  correctness  and  the  procedures  for  the 
reconciliation  of  data  between  them.  Secondly,  trade  repositories  would  be  required  to 
grant counterparties – upon specific request only, without the need to do so automatically 
and on a recurrent basis – access to all data reported on their behalf, once again in order 
to  allow  for  a  verification  of  its  correctness.  The  advantage  of  this  option  is  that  the 
quality  of  data  reported  to  beneficiaries  and  subsequently  made  available  to  authorities 
would  increase,  which will  make  the  derivatives  market  more  transparent  and  facilitate 
the monitoring of systemic risk therein. Moreover, after the initial transition phase to the 
new  rules,  reporting  of  transaction  data  by  counterparties  and  the  processing  of  the 
reported  data  (due  to  greater  standardisation  and  better  quality  thereof)  would  become 
more  straightforward,  reducing  the  costs  and  burdens  resulting  from  the  reporting 
obligation. Finally, it is important to note that Article 26 of MiFIR already gives ESMA 
the  mandate  to  specify  the  “data  standards  and  formats  for  the  information  to  be 
reported  (…),  including  the  methods  and  arrangements  for  reporting  financial 
transactions  and  the  form  and  content  of  such  reports”,  and  that  Article  5(2)  of  SFTR 
already  requires  a trade repository  to  "apply  procedures to  verify the completeness  and 
correctness of the details reported to it". As such, this option has the added advantage of 
aligning the rules in these three pieces of legislation. The disadvantages of this option are 
the possibility that reporting counterparties will incur some additional costs and efforts in 
the  initial  stages  of  implementation,  and  the  additional  burden  placed  on  trade 
repositories to ensure the quality and transparency of the data. However, given the SFTR 
requirement mentioned above, trade repositories will need to implement such procedures 
for securities financing transactions in any case, the impact on them of this option would 

68 

 
 
 
in effect be neutral. In the public consultation, most of the respondents130 suggested that 
improvements  in  transparency  are  needed.  A  wide  variety  of  suggestions  were  made, 
ranging from insufficient standardisation of reporting, to a need for access by a broader 
range of authorities, to problems with aggregation by TRs. There was consensus among 
financial regulators on the need to put in place additional rules to ensure the quality and 
transparency of data. 

Option 3 – Expand ESMA's mandate to regulate the TRs  

This option would include all of the elements of Option 2 aimed at extending the scope 
of  technical  standards  to  be  adopted  by  ESMA  for  the  harmonisation  of  the  reporting 
requirements  and  ensuring  the  transparency  and  quality  of  data,  but  would  also  go 
beyond that by granting ESMA a number of new powers in its role as a regulator of trade 
repositories. These would include: (i) requiring TRs to submit periodic information (e.g. 
financial accounts or audit, risk, and compliance reports) to ESMA; (ii) allowing ESMA 
to  regulate  the  documents  which  TRs  can  require  authorities  to  sign  before  accessing 
data;  (iii)  expanding  the  list  of  the  enforcement  decisions  that  ESMA  can  adopt  for 
breaches by TRs and introducing an accelerated adoption procedure; and (iv) removing 
the  need  for  a  judicial  authorisation  for  non-coercive  on-site  inspections.  The  main 
advantages of this option are that it would increase the transparency of TR activities and 
any  potential  risks  to  TRs'  business  activity,  would  give  ESMA  greater  flexibility  in 
responding  to  any  breaches,  and  might  facilitate  authorities'  access  to  TR  data.  The 
principal  disadvantage  is  that  it  would  place  significant  additional  burdens  on  TRs  and 
introduce new costs and uncertainties into their operations, creating a risk that some TRs 
may  decide  that  this  activity  is  no  longer  viable  and  choose  to  exit  the  market. 
Furthermore,  these  additional  powers  would  have  a  very  limited  direct  impact  on  data 
quality and transparency and some of them would be very difficult to implement taking 
into  consideration  national  judiciary  systems.  Some  financial  regulators  were  not  in 
favour of empowering ESMA with additional powers.    

Table 7. Comparison of policy options against effectiveness and efficiency criteria 

EFFECTIVENESS 

        Objectives 

Objective 1 

Objective 2 

Objective 3 

EFFICIENCY 

(cost-
effectiveness) 

Increase proportio-
nality of rules without 
putting financial 
stability at risk 

Increase transpa-
rency of OTC 
derivatives positions 
and exposures 

Reduce 
impediments 
to access to 
clearing 

0 

+ 

0 

++ 

0 

n.a. 

0 

+ 

Policy  
option  

Option 1 
No policy change 

Option 2 
Introduce  new  TR 
requirements  and 
expand  the  scope 
of 
technical 
standards 

130  Including several European and national associations such as the European Association for Investors in 
Non-Listed  Real  Estate  Vehicles  (INREV),  the  Commercial  Real  Estate  Finance  Council  Europe, 
(CREFC), etc. 

69 

 
 
 
 
 
 
 
                                                 
ESMA's 
to 

Option 3 
Expand 
mandate 
regulate TRs 
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly 
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable 

n.a. 

+ 

- 

- 

The preferred option is option 2. This option will significantly increase the transparency 
of  OTC  derivative  markets  and  the  quality  of  reported  data,  facilitating  the  task  of  the 
relevant  authorities  of  monitoring  systemic  risk.  Additionally,  in  the  medium  and  long 
term  it  will  increase  the  proportionality  of  the  reporting  rules  and  reduce  costs  and 
burdens  while  maintaining  to  the  greatest  extent  possible  alignment  with  international 
standards in this field. As such, this option is generally supported by the Member States. 
While option 3 might have a similar effect on the transparency and quality of data, due to 
the  additional  burdens  placed  on  TRs,  it  could  disincentivise  TRs  from  offering  these 
services and would be much more neutral in terms of the proportionality of the rules and, 
due  to  the  additional  costs  which  will  be  generated  and  may  be  passed  by  TRs  onto 
counterparties, will be significantly less efficient. 

The preferred option corresponds to the operational objective of improving the quality of 
transaction data reported to TRs and of the processed data provided by TRs.  

5.4.2.  Trade repositories – insufficient fines 

Policy option 

Description 

1. No policy action 
2. Increase the upper limit of the basic amount 
of fines 
3. Introduce a minimum fine calculated as a 
percentage of the TR's turnover  

The baseline scenario applies. 
The upper limit of the basic amounts of fines would be 
significantly increased. 
The minimum amount of the fine would be a percentage 
of the TR's turnover and increase the lower amount of 
fines. 

Option 1 - No policy action 

In the absence of any policy action, the amount of fines that ESMA can impose would 
remain low and limit the effectiveness of ESMA's supervisory powers vis-à-vis the trade 
repositories.  

Option 2 - Increase the upper limit of the basic amounts of fines 

Increasing significantly the upper limits of the basic amounts of fines to take into account 
the  current  turnover  of  trade  repositories  would  make  the  fines  more  efficient  and 
dissuasive,  make  ESMA's  supervisory  powers  more  effective  and  incentivise  the  trade 
repositories'  compliance  with  EMIR  requirements  and  indirectly  increase  financial 
stability.  To  increase  the  upper  limits  basic  amounts  as  proposed  by  ESMA  -  by 
multiplying the current upper limits by ten  - would in relative terms bring the amounts 
close  to  the  fines  that  ESMA  can  impose  on  credit  rating  agencies  which  ESMA  also 
directly  supervises  while  still  keeping  the  fines  proportionate  for  smaller  trade 
repositories.  Member  States  generally  favour  ensuring  that  the  fines  are  dissuasive  to 
which this option corresponds.  

Option  3  –  Increase  the  lower  limit  of  the  basic  amounts  of  the  fines  and  introduce  a 
minimum fine calculated as a percentage of the trade repository's turnover  

70 

 
 
 
 
Introducing a minimum fine calculated as a percentage of the trade repository's turnover 
could  better  take  into  account  the  turnover  of  big  trade  repositories,  if  the  final  fine 
imposed  would  be  the  higher  one  between  the  fine  calculated  on  the  basis  of  the  basic 
amounts and taking into account the aggravating and mitigating factors and the minimum 
amount calculated as a percentage. On the other hand, it could result in disproportionate 
fines for big trade repositories committing less important infringements and generally for 
smaller trade repositories. This option would also deviate from the framework for credit 
rating  agencies  that  does  not  recognise  a  percentage  based  minimum  amount  for  fines.  
Similarly, increasing the lower limit of the basic amounts could lead to disproportionate 
fines for smaller trade repositories.  

Table 8. Comparison of policy options against effectiveness and efficiency criteria 

EFFECTIVENESS 

        Objectives 

Objective 1 

Objective 2 

Objective 3 

EFFICIENCY 

(cost-
effectiveness) 

Policy  
option  

Option 1 
No policy change 

Increase proportio-
nality of rules without 
putting financial 
stability at risk 

Increase transpa-
rency of OTC 
derivatives positions 
and exposures 

Reduce 
impediments 
to access to 
clearing 

0 

0 

0 

0 

++ 

n.a 

Option 2 
Increase the upper 
limit  of  the  basic 
amount of fines. 
Option 3 
Introduce 
a 
minimum  fine  and 
increase  the  lower 
limit  of  the  basic 
amount of fines 
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly 
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable 

n.a 

n.a 

n.a 

++ 

+ 

- 

The preferred option is option 2. It would increase the efficiency and dissuasive effect of 
the fines which is considered to be necessary by regulators to incentivise the good quality 
of the data for the purpose of monitoring financial stability risks. It is more proportionate 
than combination 3 as well as more consistent with the other regime under which ESMA 
can impose fines on entities it directly supervises.  

Translated into an operational objective, the preferred option aims at adjusting fines for 
infringements  of  EMIR  provisions  by  TRs  to  a  level  that  corresponds  to  the  needs  of 
effective supervision, thus contributing to ensuring the quality of TR data. 

5.5.  On insufficient access to clearing 

Policy option 

Description 

1. No policy action 
2. Clarify the interaction between EMIR 
default management tools and national 
insolvency laws and introduce a FRAND 
principle provision 
3. Oblige clearing members and their clients 
to offer clearing services to all counterparties 

The baseline scenario applies. 
Providing for the insolvency remoteness of EMIR default 
management tools. A specific FRAND principles 
provision would apply to clearing members and clients 
that offer client and indirect client clearing. 
Providing for provisions that oblige clearing members and 
their clients to offer clearing services to all counterparties 

71 

 
 
 
 
 
 
 
 
required to centrally clear  

Option 1 - No policy action 

required to centrally clear and, thus, constituting clearing 
members and their clients as new types of financial 
market infrastructures offering clearing services in the 
public interest. 

In  the  absence  of  any  policy  action,  the  baseline  scenario  applies.  The  difficulties  of 
access  to  clearing  in  general  and  especially  the  legal  uncertainty  with  regard  to  the 
interaction  between  the  EMIR  default  management  tools  and  the  national  insolvency 
laws  would  remain  if  no  policy  actions  were  taken.  This  contradicts  the  counterparties' 
need  to  access  CCPs  for  clearing  purposes,  so  that  they  are  able  to  conclude  OTC 
derivatives  which  are  subject  to  mandatory  clearing.  In  the  absence  of  access, 
counterparties may be unable to hedge their positions which could lead to increasing risk. 

Option  2  -  Provide  for  the  insolvency  remoteness  of  EMIR  default  management  tools 
within  EMIR  and  introduce  a  more  specific  FRAND  principles  provision  for  clearing 
members and clients that offer client and indirect client clearing 

Option 2 is to make the EMIR default management tools insolvency remote by providing 
for a clear provision that EMIR overrides the national insolvency law in respect to EMIR 
default  management  tools.  This  would  give  legal  certainty  to  CCPs,  clearing  members 
and clients and fulfil their objective of giving an appropriate level of protection to clients. 
This option is the one supported by ESMA in paragraph 5.2 of its EMIR Review report 
n°3  -  Review  on  the  segregation  and  portability  requirements.131  This  option  does  not 
relate  to  any  of  the  elements  included  in  the  Commission  legislative  proposal  on 
preventive  restructuring  frameworks,  second  chance  and  measures  to  increase  the 
efficiency of restructuring, insolvency and discharge procedures132. 

This option would increase the clients' level of protection and limit their exposure to the 
default  of  a  clearing  member  or,  in  the  case  of  indirect  clearing,  a  clearing  member's 
client acting on their behalf. EMIR seeks to ensure the protection of clients of clearing 
members through specific records of positions and assets given as collateral, as well as 
specific procedures in case of a clearing member's default. The most protective scheme 
allows  clients  to  be  immune  to  their  clearing  member’s  default  as  much  as  possible, 
through  transfer  of  positions  and  assets  of  a  defaulting  clearing  member’s  clients  to  a 
solvent clearing member ('portability') or, as the case may be, the orderly liquidation of 
the clients’ positions and the return of excess collateral directly to the clients ('leapfrog 
payment'),  see  Articles  39  and  48(5)  to  (7)  of  EMIR,  but  does  not  provide  for  the 
insolvency  remoteness  of  these  EMIR  default  management  tools.  Adding  a  provision 
providing  for  their  insolvency  remoteness  would  further  foster  the  effectiveness  and 
predictability  of  the  EMIR  default  management  tools  such  as  portability  and  leapfrog 
payments. It removes a legal hurdle CCPs and clearing members experience in practice 
when assessing the enforceability of the EMIR default management tools. 

On  the  other  hand,  introducing  this  additional  insolvency  remoteness  provision  might 
modify in some Member States their current national insolvency law and thus modify the 
ranking  order  set  out  by  their  national  insolvency  law  by  giving  further  preference  to 

131  ESMA,  EMIR  Review  report  n°3  -  Review  on  the  segregation  and  portability  requirements, 

ESMA/2015/1253, 13 August 2015, 
https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1253_-
_emir_review_report_no.3_on_segregation_and_portability.pdf 

132  COM(2016) 723 final of 22.11.2016 

72 

 
 
 
                                                 
some insolvency creditors – i.e. the clients of the insolvent institution may it be a clearing 
member or a client of a clearing member who provides indirect clearing services. Some 
Member States have already introduced these changes in their national systems (e.g. UK 
and  France)  and  others  have  started  the  necessary  legislative  procedures  to  do  so  (e.g. 
Italy). 

The value of making EMIR default management tools insolvency and default remote can 
be  at  least  theoretically  quantified  as  the  insurance  premium  of  an  insolvency 
contingency insurance of the affected assets. 

In  addition, the  lack  of  efficiency  of  the  requirement  for  clearing  members  to  facilitate 
indirect  clearing  services  on  reasonable  commercial  terms  could  be  mitigated  by 
introducing  a  FRAND  principles  provision  into  EMIR.  A  more  developed  requirement 
for  clearing  members  and  their  clients  which  choose  to  offer  clearing  services  to  other 
counterparties  to  do  so  under  fair,  reasonable  and  non-discriminatory  (FRAND) 
commercial  terms  would  foster  the  access  to  clearing  for  those  counterparties  that 
currently face problems to get access to clearing.  

The current market allows clearing members or clients offering indirect clearing services 
to explicitly price discriminate between downstream customers. While there is generally 
no situation of market dominance or monopoly of a single provider, the characteristics of 
the  market,  in  particular  the  lack  of  price  transparency  prevents  efficient  forms 
competition.  It  also  implies  significant  search  costs  for  downstream  customers,  who, 
given the clearing obligation,  require access to  the clearing market  or  face  problems to 
hedge risks. Subjecting providers of clearing services to minimum transparency and non-
discriminatory  access  requirements  will  mitigate  these  issues.  It  may,  however,  not  be 
sufficient  to  lower  costs  for  the  smallest  of  clients  to  the  extent  necessary  to  make 
clearing services economically feasible for them.  

These very small clients will profit from the lifting of the clearing obligation for (very) 
small  financials  and  the  alleviation  of  the  clearing  obligation  for  NFCs  as  described  in 
section 5.3. 

The  FRAND  requirements  could  include  in  addition  to  the  existing  requirement  for 
clearing members to facilitate indirect clearing services on reasonable commercial terms: 

-  detailed requirement on what constitutes reasonable commercial terms; 
- 

the requirement to facilitate indirect clearing services on the basis of costs and 
risks; 
the requirement to facilitate indirect clearing services on a non-discriminatory 
basis so that any differences in prices charged are proportionate to costs, risks 
and benefits connected to the clearing services offered; and 

- 

-  a  transparency  obligation  with  respect  to  fees,  prices,  discount  policies  and 

other contractual terms and conditions regarding the price list. 

Introducing  more  detailed  FRAND  requirements  responds  to  the  observation  of  many 
stakeholders  that  clearing  members  and  especially  their  clients  have  no  interest  in 
offering  indirect  clearing  services  to  counterparties  whose  clearing  portfolio  they 
consider  to  be  too  small.133  These  FRAND  requirements  will  foster  transparency  with 

133  Exempting  (very)  small  financial  counterparties  and  more  non-financial  counterparties  from  the 
clearing  obligation  will  further  reduce  the  insufficiency  of  the  access  to  clearing  as  it  removes  the 

73 

 
 
                                                 
 
regard  to  the  costs  and  other  requirements  of  clearing  services  and,  therefore,  wil 
facilitate the access to clearing. 

Option 3 – Oblige clearing members and their clients to offer (indirect) clearing services 
to all counterparties obliged to centrally clear 

Option 3 is to oblige clearing members and their clients to offer clearing services to all 
counterparties  obliged  to  centrally  clear.134  This  would  change  the  role  of  clearing 
members  and  their  clients  from  for-profit  financial  institutions  that  offer  the  access  to 
clearing among other services on a contractual basis, to that of service providers in the 
interest  of  the  public.  Consequently,  this  change  would  make  them  a  new  type  of 
financial  market  infrastructure  requiring  additional  regulation.  While  EMIR  currently 
relies  on  contractual  commitments  by  CCPs,  clearing  members,  clients  and  indirect 
clients,  the  rights  and  obligations  of  clearing  members  and  clients  in  their  capacity  of 
newly  created  financial  market  infrastructures  and  clients  and  indirect  clients  as  their 
customers would have to be spelled out in EMIR or new level 2 measures.135 In addition, 
price regulation provisions may well be necessary to facilitate the mandatory offering of 
clearing  services  that  are  not  economically  feasible.  This  option  would  entitle  each 
counterparty  to  access  clearing  regardless  if  economically  feasible  or  desired  by  the 
clearing member or client and, therefore, remove any possible hurdle preventing it. But it 
would  fundamentally  change  the  nature  of  (indirect)  client  clearing  which  would  be 
governed  mainly  by  mandatory  law  instead  of  contractual  commitments  of  market 
participants.  Option  3  would  further  require  a  legal  definition  of  those  services  that 
would fall under the offering obligation and distinguish them from (additional) services 
within  (indirect)  client  clearing  that  clearing  members  and  their  clients  would  not  be 
legally  obliged  to  offer.  This  distinction  would  be  not  easy  to  make  because  (indirect) 
client clearing is still developing. 

Table 7. Comparison of policy options against effectiveness and efficiency criteria 

EFFECTIVENESS 

        Objectives 

Objective 1 

Objective 2 

Objective 3 

EFFICIENCY 

(cost-
effectiveness) 

Increase proportio-
nality of rules without 
putting financial 
stability at risk 

Increase transpa-
rency of OTC 
derivatives positions 
and exposures 

Reduce 
impediments 
to access to 
clearing 

0 

++ 

0 

++ 

0 

+ 

0 

++ 

Policy  
option  

Option 1 
No policy change 

Option 2 
Insolvency 
remoteness  of  the 
default 
EMIR 

necessity  for  counterparties  that  are  too  small  for  central  clearing  their  portfolio  to  be  economically 
reasonable will no longer be obliged to seek that access.      

134  This  option  was  suggested  in  confidence  by  a  regulator  in  case  the  introduction  of  new  FRAND 

requirements (see option 2) would not be sufficient to create an adequate access to clearing. 
135   Examples for potential further legal requirements that could be introduced in Articles 39 and 48 of 

EMIR can be found in ESMA, EMIR Review report n°3 - Review on the segregation and portability 
requirements, page 10 to 11, ESMA/2015/1253, 13 August 2015, 
https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1253_-
_emir_review_report_no.3_on_segregation_and_portability.pdf 

74 

 
 
 
 
 
 
 
                                                                                                                                                 
management  tools 
and  new  FRAND 
for 
requirements 
clearing  members 
and  clients 
that 
offer  client  and 
indirect 
client 
clearing 
Option 3 
Oblige 
clearing 
members  and  their 
to  offer  clearing 
services 
all 
to 
counterparties 
obliged 
centrally clear  
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly 
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable 

++ 

++ 

-- 

-- 

to 

The preferred option is option 2. It tackles the two main hurdles to access to clearing not 
already  dealt  with  in  in  the  Commission's  legislative  proposal  to  amend  the  Capital 
Requirements  Regulation  as  regards  the  leverage  ratio  calculation136.  This  option 
responds to practical problems reported by several stakeholders.137 Option 2 may require 
changes in the national insolvency laws, but given the public interest in making central 
clearing work and the clearing obligation been obeyed and having evidence about the fact 
that some Member States have already introduced these rules into their systems, this is 
justified. In addition to this preferred option, counterparties with (very) limited activities 
(in  certain  classes  of  derivatives)  profit  from  the  lifting  of  the  clearing  obligation  for 
(very)  small  financials  and  the  restriction  of  the  clearing  obligation  for  NFC+  to  those 
classes  of  OTC  derivatives  for  which  the  clearing  threshold  has  been  reached.  These 
changes  would  prevent  situations  in  which  (very)  small  counterparties  had  to  pay 
prohibitive prices of – in extreme cases – USD 10 000 per trade. 

Introducing new FRAND requirements may lead to new requirements clearing members 
and  their  clients  have  to  comply  with,  but  the  limited  additional  regulatory  burden  is 
justified by the public interest in making central clearing work and the clearing obligation 
being obeyed.  

Option  2  is  preferable  to  option  1  which  would  mean  to  let  the  existing  hurdles  to  the 
access  to  clearing  remain  untouched.  It  is  as  well  preferable  to  option  3  that  would 
fundamentally  change  the  nature  of  (indirect)  client  clearing.  Prior  to  such  an  extreme 
legislative  measure,  market  participants  should  be  enabled  to  invent  solutions  through 
contractual arrangements. This is even more true as the main hurdle to access to clearing 
cited by a large number of stakeholders is the leverage ratio framework under Basel III 
and CRR, a problem that will be solved by Commission's legislative proposal to amend 

136  Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 
No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and 
eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures 
to  collective  investment  undertakings,  large  exposures,  reporting  and  disclosure  requirements  and 
amending  Regulation 
final.  
http://ec.europa.eu/finance/bank/docs/regcapital/crr-crd-review/161123-proposal-amending-
regulation_en.pdf. 

(EU)  No  648/2012,  23  November  2016,  COM(2016)  850 

137  See  ESMA,  EMIR  Review  report  n°3  -  Review  on  the  segregation  and  portability  requirements, 
2015, 

ESMA/2015/1253, 
https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1253_-
_emir_review_report_no.3_on_segregation_and_portability.pdf 

August 

13 

75 

 
 
 
                                                 
the  CRR.  Furthermore,  the  exemption  of  the  smallest  financial  and  non-financial 
counterparties  from  the  clearing  obligation  will  benefit  the  counterparties  with  the 
smallest  market  power  that  would  first  and  foremost  need  to  relay  on  an  obligation  of 
clearing  members  and  their  clients  to  offer  (indirect)  clearing  services.  Thus,  it  is 
necessary  to  await  the  outcome  of  the  proposed  measures  before  obliging  clearing 
members and their clients to offer (indirect) clearing services to all counterparties obliged 
to centrally clear.  

In terms of operational objectives, the preferred option aims at reducing obstacles to the 
provision  of  clearing  services,  with  a  view  to  achieving  a  significant  increase  in  the 
accessibility of clearing by providing for legal clarity with regard to default management 
procedures in client clearing and the implementation of the FRAND principles. 

6.  OVERALL IMPACT OF THE PACKAGE  

6.1.  Global estimates of cost reductions and impact on financial stability  

To  the  extent  possible,  taking  into  account  the  limitation  in  having  access  to  the 
necessary data for the assessment, this section estimates the cost and burden reductions 
associated with the preferred options. 

6.1.1.  Avoiding liquidity costs for PSAs 

Given  the  continued  absence  of  viable  non-cash  central  clearing  solutions,  a  new 
transitional clearing exemption for PSAs would avoid the liquidity costs associated with 
central clearing, which would ultimately be passed on to pensioners.  

Such costs would depend on the level of additional costs associated with the cash buffers 
that  PSAs  would  have  to  set  up  for  the  purpose  of  meeting  potential  variation  margin 
calls. Providing accurate estimates on the level of such cash buffers is extremely difficult 
and would depend on the respective PSA concerned. Based, however, on the estimate of 
one major pension fund138 central clearing would require holding an additional 0.5%-1% 
of  assets  in  cash.  Assuming  that  these  figures  are  representative  of  the  whole  PSA 
industry  and  based  on  total  assets  under  management  of  the  industry  of  EUR  5.2 
trillion139, this implies cash buffers in the range of EUR 26 - 52 billion. Given an average 
long-term risk free rate of approximately 1.5% and average long-term returns on assets of 
PSA of 5%  this  would imply  additional costs of  between  EUR  780  million and 1.56 
billion.  

6.1.2.  Reducing compliance costs for NFCs 

The exemption from the reporting obligation of intragroup transactions in which one of 
the counterparties is an NFC and the exemption of the obligation of small NFCs also to 
report transactions between themselves and financial counterparties would reduce EMIR-
related compliance costs for NFCs.  

While  it  is  not  possible  to  estimate  the  exact  level  of  compliance  cost  reductions 
associated  specifically  with  the  two  above-mentioned  exemptions,  such  reductions 

138   PensionsEurope's contribution to the Call for Evidence. 
139   Figure for 2012; Europe Economics and Bourse Consult, Baseline report on solutions for the posting 

of non-cash collateral to central counterparties by pension scheme arrangements 

76 

 
 
                                                 
would represent an important part of the current total compliance costs  for NFCs 
associated  with  the  EMIR  reporting  requirements.  The  level  of  current  total 
compliance costs arising from the reporting requirements under EMIR can be estimated 
based  on  compliance  cost  data  triggered  by  similar  regulatory  reporting  requirements, 
including  those  contained  in  CRR/CRD.140  Based  on  these  figures  it  is  possible  to 
calculate  the  approximate  costs  that  NFCs  face  by  taking  into  account  the  reporting 
population,  the  share  of  NFCs  in  the  various  derivatives  market  segments141  (CDS, 
interest rates, currency (FX), equity and commodity-based derivatives), and the relative 
weight  of  these  market  segments142.  Given  that  the  share  of  NFCs  in  the  various 
segments  of  the  derivatives  market  cannot  be  measured  very  accurately  and  will 
furthermore  vary  over  time  and  for  each  specific  market,  the  calculations  are  based  on 
percentage share ranges rather than concrete figures. These ranges are then extrapolated 
to  EU-wide  figures  using  national  accounts  data.  This  results  in  high  and  low-end  cost 
figures  and  leads  to  the  following  ballpark  estimate  of  total  EMIR-related  compliance 
costs for NFCs in the EU: 

- annual compliance costs of between EUR 350 million and EUR 1.1 billion, although 
such  costs may,  however,  fall  over  time  as  reporting  systems  become  more  automated; 
and 

- one-off (fixed) costs of between EUR 1.8 billion and EUR 5.3 billion, e.g. for setting 
up IT reporting systems. Such costs may, however, have already been incurred to a large 
extent because the reporting requirement became applicable in February 2014. 

Concerning the reduction of EMIR-related compliance costs for the clearing obligation, 
according to the sources described in section 3.4, a minimum fee of EUR 95 000 would 
be applied, thus for NFCs that have a reduced portfolio and that will not fall under the 
clearing obligation in accordance to the favoured option described in Section 5.3, there 
would  be  an  important  reduction  of  costs.  Annex  8  provides  further  details  on  the 
calculation of the estimated cost reductions for NFCs. 

6.1.3.  Reducing compliance costs for small financials 

For  small  financials,  there  will  be  an  alleviation  of  compliance  costs  related  to  the 
clearing obligation. Given the fact that, according to the sources described in section 3.4, 
a  minimum  fee  of  EUR 95 000  would  apply  to  small  financials  that  have  a  reduced 
portfolio and that will not fall under the clearing obligation in accordance to the favoured 
option described in Section 5.3, there would be an important reduction of costs. Annex 8 
provides further details on the calculation of the estimated cost reductions for SFCs. 

140   Europe  Economics  2009,  Study  on  the  Cost  of  Compliance  with  Selected  FSAP  Measures  on 
compliance 
costs, 
http://ec.europa.eu/internal_market/finances/docs/actionplan/index/090707_cost_of_compliance_en.pd
f   

141   NFCs  are  present  in  less  than  1%  of  CDS  derivatives  transactions;  their  share  in  the  other  market 
segments  is  assumed  to  be  as  follows  for  the  calculation  of  the  cost  estimate  ranges:  FX:  5-10%  of 
trades, IRS: 3-10%, equity and commodity derivatives: 5-15%, based on BIS, Statistical release, OTC 
derivatives statistics at end-June 2016, November 2016 http://www.bis.org/publ/otc_hy1611.pdf  

142   http://www.bis.org/publ/otc_hy1611.pdf   

77 

 
 
 
                                                 
6.1.4.  Financial stability 

The overall impact of the package of preferred options on financial stability is neutral or 
positive. On the one hand, there is a natural trade-off: the adjusted clearing and reporting 
requirements translate into cost reductions for market participants, but at the same time 
mean  that  a  limited  number  of  OTC  derivatives  transactions  do  not  benefit  from  the 
safety provided by central clearing and that some data is not reported to TRs.  

However, the preferred options concern very targeted adjustments. The overall volume of 
transactions involving NFCs and SFCs that will be removed from the clearing obligation 
constitutes a very small fraction of the market. The clearing exemption for PSAs is of a 
temporary nature and the ultimate objective of PSAs' participating in central clearing is 
maintained.  Any  potential  risks  emanating  from  bilateral  transactions  during  this 
transitional period will be mitigated by applicable risk-mitigation rules including bilateral 
margins requirements put in place as of March 2017. The fine-tuning of reporting rules 
does  not  lead  to  a  significant  loss  of  data  for  authorities,  as  the  transactions  concerned 
represent  minimal  systemic  risk.  At  the  same  time,  the  reduction  of  financial  burdens 
from  the  envisaged  options  contribute  to  the  resilience  of  the  market  participants 
concerned, thus fostering financial stability and benefitting society. 

Other options strengthen financial stability. New TR requirements and the expansion of 
the scope of technical standards to harmonise reporting rules and procedures will lead to 
an increase of the quality of data available to authorities. The increase of the upper limits 
of the basic amounts of fines will incentivise trade repositories' compliance with EMIR 
requirements and also help enhance the quality of TR data. These options will make the 
OTC derivatives market more transparent and facilitate the monitoring of systemic risk.  

Improved  access  to  clearing  resulting  from  the  clarification  of  interactions  between 
EMIR  and  national  insolvency  rules  and  the  introduction  of  FRAND  principles  will 
improve access to clearing and more transactions will be centrally cleared. 

6.1.5.  Global estimates of total cost reductions 

Table  9  below  provides  an  overview  of  global  estimates  of  cost  reductions  that  the 
preferred options would bring about, on the basis of calculations presented earlier in this 
section and of a methodology further detailed in Annex 8. The cost reductions have been 
estimated solely for the purpose of this impact assessment, under the REFIT framework. 

On the basis of the table below, the range of total cost reductions is: 

  Total operational cost reductions: EUR 1.1bn – 2.66bn 
  Total fixed (one-off) cost reductions: EUR 2.3bn – 6.9bn 

It is necessary to stress a number of limitations that have a bearing on the reliability of 
the  estimated  cost  reductions.  First,  the  estimated  cost  reductions  are  valid  only  at  the 
current point in time. Requirements that will apply at a later stage, such as the phased-in 
application of margin requirements, have not been taken into account in the calculations. 
The  estimates  do  not  distinguish  between  cost  reductions  that  are  expected  to  (i)  be 
delivered  both  immediately  and  in  the  mid-term,  and  (ii)  be  effectively  reduced  or 
avoided,  depending  on  the  preferred  option  considered.  Second,  calculations  rely  on  a 
number of underlying assumptions that were necessary to quantify the magnitude of the 
estimated cost reductions. These are based on the limited amount of data that is publicly 

78 

 
 
 
available  and  on  anecdotal  market  intelligence,  which  may  not  accurately  capture  the 
diversity  and  the  specificity  of  the  counterparties  at  play.  In  addition,  calculations  are 
based on the assumption that the cost reductions generated by the preferred options will 
be entirely passed on to end-users, namely the NFCs and the SFCs. Annex 8 sets out in 
greater  detail  under  which  assumptions  the  cost  reductions  apply.  Third,  the  estimates 
focus  on  the  quantification  of  cost  reductions.  Minimal  adjustment  costs  resulting,  for 
instance,  from  introducing  FRAND  terms  (expected  impact  on  clearing  members)  and 
from  measures  to  increase  the  quality  of  data  (expected  impact  on  TRs)  have  not  been 
included  in  this  calculation.  It  is  expected  that  after  an  initial  transition  phase  the 
resulting administrative burden from FRAND requirements will be limited and that some 
administrative  costs  should  even  decrease  in  the  mid-term  to  long-term  as  a  result of  a 
more straightforward reporting approach. More details on changes in the administrative 
burden  are  provided  in  section  6.3.  Annex  7  also  provides  a  detailed  qualitative 
description of who is affected by the preferred options and how.  

79 

 
 
Table 9 - Estimates of total cost reductions (in EUR) 

                           Entities 
Pref. Options 

PSAs 

NFCs 

FCs 
(including SFCs) 

CCPs 

TRs 

Impact on financial 
stability 

Society 

Scope of clearing requirement [Since the clearing obligation does not apply yet to the entities considered, the figures provided below represent a range estimate of the costs that will be immediately avoided.] 
1. Provide transitional 
exemption for PSAs 
(option 3) 

Operational costs 
avoided    780mn 
– 1.56bn     

Adverse impact on revenue 
income of PSAs policy 
holders is avoided. 

Non-applicable (n.a.) 

n.a. 

No cost reduction. 
Some costs for clearing 
members of developing 
a solution for PSAs.  
n.a. 

No cost reduction. 
Some costs of 
developing a 
solution for PSAs. 
n.a. 

n.a. 

Fixed costs avoided 
9.6mn  - 26.7mn  

n.a 

n.a. 

Limited - PSAs remain 
subject to risk-mitigation 
rules applying to uncleared 
derivative contracts. 
Limited - exempted 
transactions amount to 
0.001% of total notional 
amount for NFCs and FCs. 
Limited - estimates in 
considered IRS class reach 
0.32% of total notional 
amount for NFCs and FCs.    

Cost reduction for 
corporates, which can 
instead invest savings into 
growth and jobs. 
SFCs, e.g. co-operative 
saving or mortgage banks, 
can further finance real 
economy.  

Small PSAs may 
also be SFCs. See 
other column. 

n.a. 

Fixed costs avoided 
509.7mn – 1.4bn  

n.a. 

2. Limit clearing 
obligation to asset 
class(es) where NFCs+ 
exceed threshold (opt. 2) 
3. Remove SFCs from 
the scope of the clearing 
obligation (option 2) 

Scope of reporting requirements [Since the reporting obligation already applies, and costs have been and are incurred, the figures below represent a range estimate of the costs that will be immediately reduced.]  

4. Fine-tune reporting 
rules (different 
depending on 
counterparty) (option 2) 

Cost reduction 
related to removal 
of ETDs & 
backloading. 

Cost reduction 

Operational 
350mn -
1.1bn 

Fixed  
1.8bn -
5.3bn 

Cost reduction related to 
removal of ETDs & 
backloading.  

n.a.   

No cost reduction.  
Limited costs as 
need to introduce 
ETD reporting. 

Neutral – no significant 
data loss for supervisors. 

Cost reduction for 
corporates, which can 
instead invest savings into 
growth and jobs. 

Transparency of OTC derivatives market [For details on the nature and magnitude of administrative costs, please see related part in section 6.3 of the impact assessment.] 

5. Improve quality of 
data  (option 2) 

6. Increase level of fines 
(option 2) 

n.a. 

n.a. 

No cost reduction. 
Minimal adjustment cost 

No cost reduction. 
Minimal adjustment cost 

n.a. 

n.a. 

n.a. 

n.a. 

No cost reduction. 
Adjustment costs. 

Positive - as will help 
better identify risks. 

Reduced risks of financial 
crisis. 

Fines only if TRs 
breach law. 

Positive - as will help 
ensure enforcement. 

Reduced risks of financial 
crisis. 

Access to clearing [As the clearing obligation applies to clearing members and Cat. 2 counterparties, but not yet to Cat. 3 counterparties, the figures below provide a range estimate of costs that will be both avoided 
and reduced in the mid-term.]   
7. Clarify interaction 
with national insolvency 
rules and introduce 
FRAND terms. (option 2) 

Cost reduction will free up 
further investment 
opportunities, benefiting 
growth. 

Positive – as will 
strengthen incentives to 
centrally clear and reduce 
systemic risk. 

For NFCs+, fixed cost 
reduction of 24.8mn- 
69.5mn 

 n.a. 

n.a. 

n.a. 

For FCs that use indirect 
or client clearing, fixed 
cost reduction of    
32.6mn-91.3mn 
FRAND-adjusting costs 
for clearing members. 

Grand total  

Operational 
780mn – 1.56bn     

Operational:  
350mn -
1.1bn  

Fixed:  
1.8bn -
5.4bn 

Fixed:  
542.3mn-1.5bn 

Minimum 
adjustment cost. 

Minimum 
adjustment cost. 

Neutral to positive. 

Positive as cost reduction 
will benefit investment and 
growth, without putting 
financial stability at risk. 

80 

 
 
 
 
 
 
 
 
6.2.  Small and medium-sized enterprises 

SMEs  will,  in  particular,  benefit  from  the  options  aimed  at  (i)  reducing  regulatory 
requirements  in  cases  where  disproportionate  compliance  costs  appear  to  outweigh 
prudential  benefits  and  (ii)  improving  access  to  clearing.  Notably,  some,  especially  the 
very  small  financial  counterparties  or  those  non-financial  counterparties  with  only  a 
limited  volume  of  activity,  will  be  exempted  from  the  clearing  obligation.  The 
simplification of reporting requirements will benefit all counterparties, including SMEs. 
In  addition,  SMEs  that  qualify  as  'medium-sized  undertakings'  in  the  meaning  of 
Directive  2013/34/EU  will  benefit  from  the  obligatory  delegation  of  reporting 
requirements to the financial counterparty of the trade. Finally, introducing new FRAND 
principles will make it easier to find access to clearing for many counterparties.  

Other proposed options in the Impact Assessment are not expected to have any material 
impact on SMEs. 

6.3.  Administrative burden 

to  private  parties.  The  envisaged  simplification  and 

Administrative  burden  is  related  to  legal  obligations  to  provide  information  to  public 
authorities  or 
increased 
proportionality  of  rules  on  reporting  will  therefore  considerably  reduce  the  overall 
administrative  burden  borne  by  firms  that  are  subject  to  reporting  requirements  under 
EMIR.  

The  removal  of  the  backloading  obligation  will  benefit  all  counterparties  that  would 
otherwise have to backload historic trade data and reduce their administrative burden.  

The exemption of intragroup transactions involving NFCs from the reporting obligation 
will benefit such NFCs.  

Transferring the obligation to report ETD transactions from counterparties to CCPs will 
reduce  administrative  costs  borne  by  counterparties.  At  the  same  time,  such  a  transfer 
could  be  seen  as  shifting  the  onus  to  CCPs;  however,  CCPs  already  have  a  significant 
amount of data concerning these transactions in their possession and are already required 
to  report  all  centrally-cleared  derivative  transactions  under  EMIR.  Therefore,  the 
additional  burden  placed  on  CCPs  will  be  limited.  Moreover,  due  to  the  economies  of 
scale  involved  the  overall  administrative  costs  should  be  considerably  lower  if  CCPs 
report  the  data  of  all  transactions  concerned  centrally  instead  of  many  counterparties 
reporting a small number of transactions each.  

The  reporting  of  the  trade  by  the  financial  counterparty  of  the  transactions  with  small 
NFCs reduces the administrative burden for the smaller and smallest market participants; 
these  firms  may  only  carry  out  a  very  limited  number  of  transactions  per  year  and  are 
therefore  likely  to  bear,  in  relative  terms,  the  highest  burden  linked  to  reporting 
obligations  considering  that  the  (partially  fixed)  costs  to  establish  and  maintain  an 
adequate  reporting  infrastructure  (e.g.  employing  and  training  of  qualified  staff, 
necessary  informatics  systems  etc.)  have  to  be  apportioned  to  a  small  number  of 
transactions.  While  the  reporting  fulfilled  by  the  financial  counterparties  involved  will 
mean  a  certain  additional  administrative  burden  for  those  counterparties,  the  resulting 
increase  of  costs  should  only  be  incremental  considering  their  much  higher  volume  of 
transactions.  

81 

 
 
The  further  harmonisation  of  reporting  rules  and  procedures  could  involve  limited 
additional  administrative  costs  in  the  initial  stages  of  implementation  in  order  to  meet 
requirements pursuant to new technical standards to be developed by ESMA, including 
the reporting standards to be used, and the methods and arrangements for reporting. After 
an initial transition phase to the new rules, reporting would become more straightforward 
and  hence  less  burdensome  for  the  reporting  counterparties.  In  the  mid-term  and  long-
term a decrease of administrative costs imposed on reporting counterparties can therefore 
be expected. 

Additional administrative costs could result from a new EMIR requirement for clearing 
members and their clients who choose to offer clearing services to other counterparties to 
do so under fair, reasonable and non-discriminatory (FRAND) commercial terms, linked, 
for instance to a possible need to provide additional information to authorities in order to 
comply with a transparency obligation with respect to fees, prices, discount policies and 
other  contractual  terms  and  conditions.  However,  the  additional  administrative  burden 
would be limited. 

6.4.  EU budget 

The  above  policy  options  do  not  have  any  implications  for  the  budget  of  the  European 
Union. Possible additional tasks arising for ESMA, such as the development of additional 
technical standards, should be manageable with ESMA’s currently planned resources.   

6.5.  Social impacts 

The  preferred  options  are  expected  to  have  a  positive  social  impact,  consisting  of  the 
following aspects (see in Annex 7): 

  reduced  compliance  costs  and  burden  imposed  on  certain  market  participants, 
such as PSAs, SFCs and NFCs – in the case of PSAs reduced costs increase the 
retirement  income  of  (future)  pensioners;  with  regard  to  SFCs  and  NFCs  the 
reduction  of  compliance  costs  strengthens  the  competitiveness  and  potential  for 
growth of these companies and benefits the job security of their employees; 

  greater  transparency  of  OTC  derivatives  positions  and  exposures  –  this  will 
enable authorities to identify any potential problems at an earlier stage and to take 
timely  action  addressing  any  risks,  thus  benefitting  the  resilience  of  financial 
markets; given the pivotal role of financial markets for the functioning of modern 
economies, this will ultimately benefit the real economy and support the jobs and 
growth agenda of the European Commission; 

 

improved  access  to  clearing  –  this  will  allow  additional  market  participants,  in 
particular  from  the  "real  economy"  to  manage  and  hedge  their  risks  and  by 
reducing  the  likelihood  of  sudden  shocks  and  business  disruptions  occurring 
contribute  to  a  less  volatile  business  development  and  job  security  of  their 
employees.   

6.6.  Impact on third countries  

The  proposal  concerns  a  limited  number  of  targeted  adjustments  to  the  existing  EMIR 
Regulation.  It  does  not  create  any  new  obligations  concerning  the  relations  with  third 
countries. Consequently, no significant impact on third countries is expected.  

82 

 
 
6.7.  Environmental impacts 

No significant environmental impact is expected. 

7.  MONITORING AND EVALUATION  

The  envisaged  options  aim  at  rendering  the  application  of  EMIR  more  effective  and 
efficient. To this end, a number of targeted adjustments to EMIR are considered.  

The proposed legislative amendment to EMIR should include a provision stating that an 
evaluation  of  EMIR  in  its  entirety  should  be  carried  out,  with  a  particular  focus  on  its 
effectiveness  and  efficiency  in  meeting  EMIR's  original  objectives  (i.e.  increase  the 
transparency  of  the  OTC  derivatives  market,  reduce  counterparty  credit  risk  associated 
with OTC derivatives, and reduce the operational risk associated with OTC derivatives). 
The evaluation should thus consider all aspects of EMIR, but in particular the following 
elements: 

Indicator 

Target 

Development of solutions to facilitate the 
participation of PSAs in central clearing.  

Level of central clearing by PSAs. 

Level of central clearing by NFC+. 

Distribution  of  clearing  within  the  class 
of  NFCs  (number  of  counterparties  per 
share  of 
asset  class,  volume  and 
outstanding  notional  amount  of  OTC 
derivatives), especially with regard to the 
appropriateness of the clearing thresholds 

Level of central clearing by SFCs. 

Distribution  of  clearing  within  the  class 
of  SFCs  (number  of  counterparties  per 
share  of 
asset  class,  volume  and 
outstanding  notional  amount  of  OTC 
derivatives  captured  and  not  captured  by 
a  clearing  obligation),  especially  with 
regard  to  the  appropriateness  of  the 
clearing thresholds 

Confirmation that practicable 
solutions are available from a 
significant  number  of  PSAs 
directly  or  from 
industry 
associations  representing  a 
significant number of PSAs.  

Level  of  central  clearing  of 
OTC  derivatives  transactions 
by PSAs: 90%.  

Level  of  central  clearing  of 
OTC  derivatives  transactions 
by NFC+: 70%.  

OTC 

Systemic  risk  represented  by 
derivative 
the 
transactions  of  NFCs 
is 
adequately  captured  by  the 
clearing obligation.  

current 

Level  of  central  clearing  of 
OTC  derivatives  transactions 
by 
'Category  3' 
counterparties143: 80%.  
Systemic  risk  represented  by 
derivative 
the 
OTC 
transactions  of  SFCs 
is 
adequately  captured  by  the 
clearing obligation 

for  monitoring 

Data 
provided by: 
ESMA 

ESMA 

ESMA 

143 Financial counterparty as defined in Category 3 of the existing Commission Delegated Regulations on 
the  clearing  obligation:  Commission  Delegated  Regulation  (EU)  2015/2205  of  6  August  2015 
supplementing  Regulation  (EU)  No  648/2012,  OJ  L  314,  1.12.2015,  p.  13;  Commission  Delegated 
Regulation (EU) 2016/592 of 1 March 2016 supplementing Regulation (EU) No 648/2012, OJ L 103, 
19.4.2016,  p.  5,  and  Commission  Delegated  Regulation  (EU)  2016/1178  supplementing  Regulation 
(EU) No. 648/2012, OJ L 195, 20.7.2016, p. 3. 

83 

 
 
 
                                                 
Quality  of  transaction  data  reported  to 
TRs  

Ease  of  access  to  data  held  by  TRs  and 
quality of data provided by TRs 

of 

Level 
non-compliant 
reporting  messages  is  below 
3% 

complaints 
of 
Absence 
received 
relevant 
by 
stakeholders, i.e. close to 0% 

of 

Accessibility 
all 
counterparties  especially  via  indirect  and 
client clearing 

clearing 

to 

participation 

Increase 
in 
central  clearing  especially 
via 
client 
clearing by 20%.  

indirect 

and 

ESMA 

ESMA 

ESMA 

In  principle,  this  evaluation  should  take  place  at  least  3  years  after  the  application  of 
these  amendments.  In  certain  cases,  notably  for  pension  scheme  arrangements,  it  is 
important  to  monitor  progress  in  the  availability  of  solutions  for  PSA  clearing  on  an 
ongoing basis. 

The  evaluation  should  seek  to  collect  input  from  all  relevant  stakeholders,  but  in 
particular CCPs, clearing members, PSAs, NFCs and small financials. Input would also 
be required from ESMA as well as national authorities and central banks. Statistical data 
for the analysis should be sought from ESMA. 

84 

 
 
 
 
 
ANNEX  1:  OVERVIEW  OF  CHANGES  ADDRESSING  THE  RECOMMENDATIONS  OF 
REGULATORY SCRUTINY BOARD (RSB) 

The main modifications introduced after the meeting with the Regulatory Scrutiny Board 
relate to the following issues: 

1.  Problem  definition.  Introduction  of  a  better  description  of  the  overall  Union  legal 
framework applying to derivatives markets and the implementation by other jurisdictions 
of  the  G20  OTC  derivatives  reforms.  Inclusion  of  the  main  elements  of  the  evaluation 
annex in the main body of the impact assessment. Reference to additional qualitative and 
quantitative  evidence  in  the  description  of  the  problems  in  order  to  illustrate  their 
magnitude,  especially  for  small  market  players.  Explanation  about  why  not  all  issues 
raised by stakeholders have been assessed. 

2. Political trade-offs. Explicit reference to financial stability in the policy options for the 
assessment  of  the  trade-off  between  the  potential  burden  reductions  for  market  players 
and the potential risks associated to financial stability. 

3. Calculating burden reduction. Inclusion of some quantitative data for the calculation of 
the burden reductions for different market players, taking into consideration the existing 
limitations  to  quantify  the  overall  burden  reduction.  Insertion  of  the  main  underlying 
assumptions  behind  cost  estimates  in  the  body  of  the  report,  together  with  additional 
caveats  on  the  reliability  of  the  estimates.  Description  of  the  costs  which  are  not 
quantified. 

4.  Options.  The  options  have  been  streamlined  to  present  alternative  packages  of 
measures. 

85 

 
 
 
 
ANNEX 2A: OVERVIEW OF DERIVATIVES MARKETS 

A derivative is a financial contract linked to the future value or status of the underlying to 
which  it  refers,  e.g.  the  development  of  interest  rates  or  of  a  currency  value,  or  the 
possible bankruptcy of a debtor. Derivatives redistribute risk and can be used for hedging 
as  well  as  for  speculative  purposes.  The  degree  to  which  derivatives  are  standardised 
differs,  ranging  from  full  standardisation  of  parameters,  such  as  notional  value  or 
maturity, to bespoke contracts that are fully tailored to the specific needs of a particular 
user.  Fully  standardised  derivatives  can  be  traded  on  organised  trading  venues,  such  as 
exchanges,  whereas  bespoke  derivatives  are  traded  bilaterally  off-exchange,  commonly 
referred  to  as  over-the-counter  ('OTC').  The  definition  of  OTC  derivatives  in  EMIR 
refers to all derivatives contracts which are not "executed on a regulated market". As a 
result all derivative contracts executed on a venue of execution which is not a regulated 
market  (e.g.  a  Multilateral  trading  facility)  are  considered  as  OTC  derivative  contracts 
under EMIR. 

As  shown  in  Chart  A-2/1  below,  the  outstanding  notional  of  over  the  counter  (OTC) 
derivatives  amounted  to  USD  544.1  trillion,  corresponding  to  89%  of  the  overall 
derivatives market, as of end-June 2016. 

Chart A-2A/1: Exchange-traded and OTC derivatives as of end-June 2016 

USD billion 

USD trillion 67.7 
(11,1%) 

OTC

Exchange traded

Source: Bank for international settlements144 

USD trillion 544.1 
(89%) 

144  See  Bank  for  International  Settlements,  Triennial  Central  Bank Survey  -  OTC  derivatives  positions  at  end-June 
2016, 

Department, 

December 

Economic 

11 

2016, 
http://www.bis.org/publ/otc_hy1612/triensurvstatannex.pdf  

Monetary 

Table 

and 

1, 

86 

 
 
 
 
                                                 
Chart  A-2/2  below  illustrates  the  different  types  of  contracts  in  the  OTC  derivatives 
market.  It  shows  that  interest  rate  derivatives  are  the  dominant  type  of  contracts, 
representing  about  80.5%  of  the  total  market as  of  end-June  2016,  followed  by  foreign 
exchange (FX) derivatives (15.8%). 

Chart A-2A/2: Constituents of the OTC derivatives market as of end-June 2016 

USD trillion 
6.8 
(1%) 

USD trillion 
1.8 
(0%) 

USD trillion 
12.0 
(2%) 

USD trillion 
0.1 
(0%) 

USD trillion 
85.7 
(16%) 

Foreign exchange

Interest rate

Equity-linked

Commodity

Credit derivatives

Other

USD trillion 
437.7 
(81%) 

Source: Bank for international settlements145  

Trading  statistics  are  based  on  the  location  of  the  primary  intermediaries  that  have 
registered  the  derivatives  contracts  with  their  counterparties  and  do  not  necessarily 
coincide with the clearing location. As far as trading is concerned, according to the 2016 
triennial BIS derivatives survey, the US market is the most important OTC interest rate 
derivatives market with a daily average turnover of around USD 1.24 trillion (41%).  The 
UK  comes  second  with  USD  1.18  trillion  (39%).  Other  leading  European  markets  are 
France (USD 141 billion or 5%) and Germany (USD 31 billion or 1%)146. As regards the 
OTC  FX  derivatives  market,  the  UK  market  is  the  world's  largest  market  with  a  daily 
average  turnover  of  around  USD  2.4  trillion  (37%),  followed  by  the  US  with  USD  1.3 
trillion  (19%).  Other  leading  EU  markets  are  France  (USD  181  billion  or  3%)  and 

145  See  Bank  for  International  Settlements,  Triennial  Central  Bank Survey  -  OTC  derivatives  positions  at  end-June 
2016, 

Department, 

December 

Economic 

11 

1, 

2016, 
http://www.bis.org/publ/otc_hy1612/triensurvstatannex.pdf  

Monetary 

Table 

and 

146  See Bank for International Settlements, Triennial Central Bank Survey of foreign exchange and OTC derivatives 

markets in 2016, table D.12.2, http://www.bis.org/statistics/d12_2.pdf  

87 

 
 
 
 
 
                                                 
Germany (USD 116 billion or 2%)147. The UK is a clear global market leader in trading 
of euro-denominated interest rate derivatives with a daily turnover of USD 574 billion148; 
before France, Netherlands, Germany, Belgium, Italy and the US respectively149. 

Overview of the clearing activities in Europe 

Following the commitment of G20 leaders in September 2009 that all standardised OTC 
derivatives should be cleared through central counterparties, the percentage of centrally 
cleared transactions has increased significantly. While end of 2009 about 36% of interest 
rate OTC derivatives had been centrally cleared, at the end of 2015 this percentage had 
gone  up  to  60%.  For  credit  OTC  derivatives  the  percentage  of  centrally  cleared 
transactions went up from about 12% to 45% in the same period. 
Table A-2A/3 offers an  overview of the 17 CCPs that are currently active in Europe150 
and  are  authorised  under  EMIR,  with  the  respective  number  of  clearing  participants 
(major banks) for each of them at the end of 2015. They are located across 12 Member 
States151. One more CCP not yet authorised under EMIR is active in Croatia. 

These CCPs vary in size, instruments admitted to clearing and geographical importance 
in terms of clearing members (i.e. national versus foreign) and markets served. 

Table A-2A/3: CCPs active in Europe and number of participants as of 
December 2016 
Source: ECB, ESMA, CCPs' websites 

Denomination 

Country 

Eurex Clearing AG 
European Commodity Clearing 
Hellenic Exchanges SA 
(Athexclear) 
BME Clearing 
OMIClear 
LCH Clearnet SA 
CC&G 
European Central Counterparty 
NV 
ICE Clear Netherlands 
CCP 
Keler Zrt. 
KDPW CCP SA 
Nasdaq OMX DM 
LCH Clearnet Ltd 

DE 
DE 
EL 

ES 
PT 
FR 
IT 
NL 

NL 
AT 
HU 
PL 
SE 
UK 

Number of 
participants 
186 
23 
25 

EMIR 
authorisation152 
YES 
YES 
YES 

60 
32 
110 
82 
45 

3 
70 
25 
43 
92 
154 

YES 
YES 
YES 
YES 
YES 

YES 
YES 
YES 
YES 
YES 
YES 

147  See  Bank 

for 

International  Settlements,  Triennial  OTC  derivatives  statistics  2016, 

table  D.11.2, 

http://www.bis.org/statistics/derstats3y.htm 

148  Forward rate agreements, swaps, options and other products. Adjusted for local inter-dealer double-counting (i.e. 

"net-gross" basis). 

149  See: Bank for International Settlements, Triennial Central Bank Survey, Interest rate derivatives market turnover 

in 2016, Table 3.2, Monetary and Economic Department, September 2016 

150  As per the register provided by ESMA in relation to Article 13 (2) of the MiFID implementing Regulation (No 

1287/2006 of 10 August 2016). 

151  As per the list maintained by ESMA for the purposes of Articles 88(1)(c) and (e) of Regulation (EU) No 648/2012 

(EMIR). 
Insofar the clearing activities of the related CCP concern a product for which a clearing obligation is applicable. 

152 

88 

 
 
 
                                                 
ICE Clear Europe 
CME CE 
LME Clear Ltd 
SKDD CCP Smart Clear d.d. 

UK 
UK 
UK 
HR 

79 
19 
42 

YES 
YES 
YES 
NO 

As can be seen, Germany, France and the UK are the home countries of major CCPs in 
Europe  as  well  as  internationally.  The  UK  is  home  to  LCH  Clearnet  Ltd,  ICE  Clear, 
CME and LME. Germany's largest CCP is Eurex, while France is home to LCH Clearnet 
SA. 

The EU has adopted three central clearing determinations, on the basis of draft regulatory 
technical standards drafted by ESMA, following analysis carried out according to criteria 
set out in EMIR. The determinations cover two different asset classes: OTC interest rate 
derivatives and OTC credit derivatives.  

The central clearing determination covering OTC interest rate swaps (IRS) related to the 
Euro, the USD, the Yen, and the British Pound has started to apply to clearing members 
(as of 21 June 2016) and financial counterparties above the EUR 8 billion threshold (as 
of 21 December 2016). For other IRS in European currencies (Norwegian Krone, Polish 
Zloty, and Swedish Krona) and Credit Default Swaps (CDS), the application has started 
phasing-in as of February 2017 for clearing members. The compliance deadlines for the 
central clearing determination applying to various asset classes and to different types of 
counterparties are summarised in the tables below. 

Table A-2A/4 - First Commission Delegated Regulation covering interest rate 
derivatives in the G4 currencies 

Source: European Securities and Markets Authority 

89 

 
 
 
 
 
 
 
 
 
Table A-2A/5– Second Commission Delegated Regulation covering European index 
CDS 

Source: European Securities and Markets Authority 

Table  A-2A/6  -  Third  Commission  Delegated  Regulation  covering  interest  rate 
derivatives in NOK, PLN and SEK 

Source: European Securities and Markets Authority 

Finally, table A-2A/7 below offers an overview of the 6 TRs that are currently active in 
Europe and are authorised under EMIR. 

90 

 
 
 
 
Table A-5/2 – List of trade repositories registered by ESMA, as of May 2015 

Source: European Securities and Markets Authorities 

91 

 
 
 
 
 
ANNEX 2B: ADDITIONAL TABLES AND FIGURES REFERRED TO IN THE TEXT 

The following tables and figures provide additional details with respect to the discussion 
of mandatory clearing requirements for Non-Financial Counterparties in section 3.2.1.2. 
Table A-2B/1: Financial and Non-Financial Counterparties153 

Source: European Securities and Markets Authority 

Table A-2B/2: Overview of Financial Counterparties, NFC+ and NFC+154 

Source: European Securities and Markets Authority 

153  ESMA,  EMIR  Review  report  n°1  –  Review  of  the  use  of  OTC  derivatives  by  non-financial 
counterparties,  Figure  2,  p.  16.  https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-
2015-1251_-_emir_review_report_no.1_on_non_financial_firms.pdf  

154   Ibid, Table 4, p. 13. 

92 

 
 
 
 
 
                                                 
Table  A-2B/3:  Presence  of  NFCs  across  asset  classes  (based  on  number  of 
counterparties)+155 

Source: European Securities and Markets Authority 

The  next  tables  and  figures  provide  additional  details  with  respect  to  the  discussion  of 
mandatory clearing requirements for small financials in section 3.2.1.3. 

Table A-2B/4: Interest rate derivative asset class, as of 29 February 2016 

Source: European Securities and Markets Authority156 

155   Ibid, Figure 2, p. 16. 
156  https://www.esma.europa.eu/sites/default/files/library/2016-

1125_cp_on_clearing_obligation_for_financial_counterparties.pdf 

93 

Cumulated number of counterpartiesCumulated % of counterpartiesCumulated Notional Amount (EUR Bn)Cumulated Notional Amounts (%)0. Above 1,000bn330.6%310,92192.26%1. Above 500bn410.7%316,91294.04%2. Above 100bn881.5%326,14996.78%3. Above 50bn1302.2%329,16297.67%4. Above 5bn4908.4%335,00999.41%5. Above 500mn1,45324.8%336,65299.90%6. Above 100mn2,55143.6%336,92499.98%7. Above 30mn3,54560.5%336,98499.99%8. Above 5mn4,83982.6%337,003100.00%9. Below 5mn5,855100.0%337,005100.00%Grand Total5,855100.0%100.0% 
 
 
 
 
                                                 
TableA-2B/5: Credit derivative asset class, as of 29 February 2016 

Source: European Securities and Markets Authority157 

Figure A-2B/4 (for Interest rate derivatives) and Figure A-2B/5 (for Credit derivatives) 
provide  an  overview  at  EU  level  of  the  share  of  each  of  the  3  existing  categories  of 
counterparties, in terms of volume and number of counterparties. 

157  https://www.esma.europa.eu/sites/default/files/library/2016-

1125_cp_on_clearing_obligation_for_financial_counterparties.pdf 

94 

Cumulated number of counterpartiesCumulated % of counterpartiesCumulated Notional Amount (EUR Bn)Cumulated Notional Amounts (%)0. Above 1,000bn30.1%5,18042.85%1. Above 500bn80.3%9,05574.91%2. Above 100bn130.5%10,41286.14%3. Above 50bn200.8%10,91990.33%4. Above 5bn582.2%11,47994.97%5. Above 500mn37914.5%11,91798.59%6. Above 100mn91535.0%12,04699.66%7. Above 30mn1,43154.7%12,07699.91%8. Above 5mn2,11380.8%12,08699.99%9. Below 5mn2,614100.0%12,087100.00%Grand Total2,614100.0%100.0% 
 
 
 
 
                                                 
Figure A-2B/6: IR – Volume and number of counterparties per category158 

Source: European Securities and Markets Authority159 

158  For  the  purpose  of  applying  the  clearing  obligation  for  different  classes  of  OTC  derivatives, 
counterparties have been divided in four categories that are defined in regulatory technical standards. 
See,  for  instance,  Article  2  of  Commission  Delegated  Regulation  (EU)  2016/592  of  1  March  2016 
supplementing  Regulation  (EU)  No  648/2012  of  the  European  Parliament  and  of  the  Council  with 
regard to regulatory technical standards on the clearing obligation. 

159  https://www.esma.europa.eu/sites/default/files/library/2016-

1125_cp_on_clearing_obligation_for_financial_counterparties.pdf  

95 

 
 
 
 
 
                                                 
Figure A-2B/7: CR – Volume and number of counterparties per category 

Source: European Securities and Markets Authority160 

160   https://www.esma.europa.eu/sites/default/files/library/2016-

1125_cp_on_clearing_obligation_for_financial_counterparties.pdf  

96 

 
 
 
 
 
                                                 
ANNEX 3: PROCEDURAL  INFORMATION  CONCERNING  THE  PROCESS  TO  PREPARE  THE 

IMPACT ASSESSMENT REPORT AND THE RELATED INITIATIVE  

  Lead  Directorate-General:  Directorate-General  for  Financial  Stability,  Financial 

Services and Capital Markets Union. 

  The  initiative  is  included  in  the  Commission  Work  Programme  2017  as  a  REFIT 

item.161 

  Organisation  and  timing  of  Inter  Service  Steering  Group’s  meetings:  four  meetings 
on 17 November, 2 December, 21 December 2016, and 8 February 2017. The Inter 
Service  Steering  Group  included  representatives  of  the  Directorates  General 
Agriculture and Rural Development (AGRI), Climate Action (CLIMA), Competition 
(COMP),  Economic  and  Financial  Affairs  (ECFIN),  Energy  (ENER),  Internal 
Market,  Industry,  Entrepreneurship  and  SMEs  (GROW),  Justice  and  Consumers 
(JUST), Taxation and Customs Union (TAXUD), Trade (TRADE), the Legal Service 
(LS) and the Secretariat General (SG). 

  Evidence used in the impact assessment: 

o  Replies by stakeholders to the following public consultations:  

  From 21 May 2015 to 13 August 2015: a public consultation in the 
framework  of  the  EMIR  Review  to  obtain  feedback  from 
stakeholders on their experiences in the implementation of EMIR, 
http://ec.europa.eu/finance/consultations/2015/emir-
revision/index_en.htm 

  From  30  September  2015 

to  31  January  2016:  a  public 
consultation in the framework of the Call for Evidence on the EU 
regulatory framework for financial services inviting feedback and 
empirical evidence on the benefits, unintended effects, consistency 
and 
legislation, 
the 
http://ec.europa.eu/finance/consultations/2015/financial-
regulatory-framework-review/index_en.htm 

coherence 

financial 

of 

o  A public hearing on the review of the EMIR Regulation, held on 29 May 
http://ec.europa.eu/finance/events/2015/0529-emir-

2015: 
revision/index_en.htm 

o  A  public  hearing  on  the  Call  for  evidence,  held  on  17  May  2016: 

http://ec.europa.eu/finance/events/2016/0517-call-for-
evidence/index_en.htm 

o  Reports  from  European  Securities  and  Markets  Authority  (ESMA): 
https://www.esma.europa.eu,  European  Systemic  Risk  Board  (ESRB): 
https://www.esrb.europa.eu/home/html/index.en.html,  European  System 
(ESCB): 
of 
https://www.ecb.europa.eu/ecb/orga/escb/html/index.en.html 
report: 

http://ec.europa.eu/finance/financial-

o  The  EMIR 

Central 

review 

Banks 

markets/docs/derivatives/161123-report_en.pdf 

o  Discussions with experts from Member States' authorities 

161  REFIT 

is 

the  Commission's  Regulatory  Fitness 

and  Performance  programme.  See:  

http://ec.europa.eu/atwork/pdf/201621025_refit_scoreboard_2016_en.pdf, p. 201. 

97 

 
 
 
 
 
                                                 
o  Report  assessing  the  progress  and  effort  made  by  CCPs  in  developing 
technical  solutions  for  the  transfer  by  pension  scheme  arrangements 
(PSAs) of non-cash collateral as variation margin, as well as the need for 
any  measures  to  facilitate  such  solution,  adopted  on  3  February  2015: 
http://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=CELEX:52015DC0039 

o  Statistics and reports published by the Financial Stability Board (FSB) and 

the Bank of International Settlements (BIS). 

98 

 
 
 
 
ANNEX 4: PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES  

This annex outlines the feedback received from stakeholders via the public consultation 
on  the  EMIR  review  (section  1),  and  the  Call  for  Evidence  on  the  EU  regulatory 
framework on financial services (section 2). It also provides an overview of an exchange 
of views on the EMIR review with representatives of Member States, of European Union 
bodies  and  authorities,  and  of  the  European  Free  Trade  Association  (EFTA)  during  a 
meeting  of  the  Derivatives  and  Market  Infrastructures  Member  States  Working  Group, 
which took place in Brussels on 7 December 2016 (section 3). 

1. Stakeholder consultation in the framework of the EMIR Review 

1.1. Overview 
The consultation162 generated 172 contributions from a broad range of stakeholders.163 
The majority came from companies (79) and industry associations (64). In addition, 15 
public  authorities  responded  as  well  as  3  private  individuals.  Responses  came  from 
various  sectors  and  some  respondents  indicated  more  than  one  area  of  activity.  The 
majority  of  respondents  which  indicated  only  one  area  of  activity  were  non-
financial/corporate  enterprises  (46)  and  industry  associations  (28).  There  were  also 
replies  from  governmental  organisations/regulators  (8),  market  infrastructure  operators 
(17), banks (16), and investment managers (13). The vast majority of respondents were 
based in the EU and the European Economic Area, with only 6 coming from the rest of 
the world (2 were from the USA, 1 from Japan, 1 from Thailand, and 2 others declared 
themselves  as  covering  multiple  jurisdictions).  A  large  number  of  respondents  were 
based in either the UK or Belgium reflecting the importance of the financial centre of the 
City  of  London  and  Belgium  as  the  home  of  many  industry  associations.  A  significant 
number of responses also came from Germany, Sweden, Finland, and France.  

Of  the  15  pre-defined  topics  for  consultation,  most  replies  related  to  trade  reporting 
(117),  clearing  obligations  (85),  non-financials  (77),  risk  mitigation  techniques  (76), 
exchange  of  collateral  (64),  definition  and  scope  (63),  and  CCP  margins  and  collateral 
(63).  

1.2. Summary of responses to the consultation   

1.2.1. Questions on elements of EMIR to be reviewed  

Feedback  was  sought  on  a  number  of  specific  elements  of  EMIR  individually.  The 
following sections present a summary of the contributions received in response to each 
particular question.  

1.2.1.1. CCP liquidity  

162   The 

consultation 

http://ec.europa.eu/finance/consultations/2015/emir-
revision/index_en.htm.  Responses  were  published  at:  https://ec.europa.eu/eusurvey/publication/emir-
revision-2015. 

found 

can 

at: 

be 

163  Moreover,  reports  of  a  more  technical  nature  that  are  formally  required  by  Article  85(1)  of  EMIR, 
were  received  from  ESMA,  the  ESCB,  and  the  ESRB.  In  addition,  a  public  hearing  was  held  in 
Brussels on 29 May 2015, which gathered around 200 stakeholders. Information on the public hearing 
the 
can  be 
summary 
http://ec.europa.eu/finance/events/2015/0529-emir-
revision/docs/20150529-emir-hearing-summary-report_en.pdf. 

found  at  http://ec.europa.eu/finance/events/2015/0529-emir-revision/index_en.htm, 

available 

report 

at: 

is 

99 

 
 
 
 
                                                 
Most  industry  respondents  supported  the  need  for  measures  to  facilitate  the  access  of 
CCPs  to  central  bank  liquidity  facilities  in  order  to  mitigate  CCPs'  exposure  to 
commercial bank risk, to decrease their liquidity risk, to strengthen CCP resilience, and 
to  safeguard  the  level  playing  field  for  CCPs.  Most  public  authorities  and  regulators, 
however,  opposed  any  such  measure  as  they  claimed  it  would  undermine  central  bank 
independence  and  discretion,  and  stated  that  mandatory  provision  of  central  bank 
liquidity could create moral hazard.  

1.2.1.2. Non-financial firms  

a) Clearing thresholds for non-hedging transactions and the corresponding definition 
of 'hedging'  

The  majority  of  respondents  considered  that  the  clearing  thresholds  for  non-hedging 
transactions  and  the  corresponding  definition  of  contracts  objectively  measurable  as 
reducing  risks  directly  relating  the  commercial  activity  or  treasury  financing  activity 
adequately  captures  those  non-financial  counterparties  that  should  be  deemed  as 
systemically important.  

Some  respondents,  however,  mainly  from  the  industry  but  also  including  public 
authorities  considered  that  some  elements  should  be  improved.  In  particular,  they 
suggested excluding intragroup transactions from the calculation of the clearing threshold 
and  treating  each  asset  class  separately  in  order  to  avoid  that  a  breach  of  a  clearing 
threshold  in  one  asset  class  should  trigger  obligations  for  clearing  in  all  other  asset 
classes.  Some  industry  participants  suggested  increasing  the  clearing  thresholds.  In 
contrast, two public authorities considered the current approach too broad and stated that 
it did not capture all systemically important non-financials.  

Some respondents, mainly from the industry, raised issues about the implementation of 
these  thresholds  suggesting  that  there  was  too  much  room  for  interpretation  of  the 
hedging  definition  resulting in  supervisors taking inconsistent approaches.  They further 
argued that it was difficult for counterparties of non-financial counterparties to ascertain 
whether they were above the clearing threshold, with a number of respondents from the 
industry and public authorities suggesting the establishment of a central register.  

Finally,  some  industry  participants  and  public  authorities  stated  that  ESMA’s  current 
interpretation of portfolio, macro or proxy hedging is problematic and that the treatment 
of these types of transactions should be clarified in a legally binding manner.  

b) Elements of EMIR that created unintended consequences for non-financial 
counterparties.  

Some  industry  participants  pointed  out  disproportionate  costs  for  non-financial 
counterparties,  with  some  recommending  excluding  non-financial  counterparties  below 
the  clearing  threshold  from  the  obligations  of  EMIR  entirely  in  order  to  mitigate 
unintended consequences. Other respondents suggested an exemption from reporting for 
non-financial counterparties below the clearing threshold.  

Finally, several respondents – almost all from the Nordic region – criticised the fact that 
EMIR  does  not  allow  the  option  of  posting  non-collateralised  bank  guarantees  as 
collateral to CCPs.  

c) Impact of EMIR on the use of, or access to, OTC derivatives by non-financial firms  

Most non-financial firms and industry associations considered that EMIR impacts the use 
of, or access to, OTC derivatives by non-financial firms. A common impact observed by 
these respondents was a decrease in hedging activities. Nevertheless, a few respondents 

100 

 
 
noted an increase in clearing  of OTC derivatives as  a result of the obligation, ahead of 
clearing obligations entering into force.  

Other respondents, mainly non-financial firms, did not notice any particular change in the 
level of activity and some others noted that it was still too early to observe the impacts of 
the regulation.  

1.2.1.3. CCP colleges  

Respondents supported the introduction of supervisory colleges by EMIR as it ensures a 
strict  level  playing  field  amongst  the  European  CCPs  as  well  as  homogeneity  in  the 
application  of  regulation  across  the  European  Union.  They  pointed  out  that  colleges 
allow  experience  sharing  and  improve  cooperation  among  relevant  authorities,  and  are 
thus  of  importance  for  financial  stability  in  the  relevant  Member  States,  striking  the 
adequate balance between ensuring an appropriate role for the home national competent 
authorities.  No  respondents  expressed  objections  to  the  establishment  of  supervisory 
colleges.  

Respondents  pointed  out,  however,  that  while  colleges  work  well  in  general,  there  was 
still some room for improvement, in particular when it comes to the validation of models 
and parameters and the extension of services.  

Some industry associations and one market infrastructure operator pointed out the need 
for  more  transparency  in  the  functioning  of  colleges,  in  particular  for  the  authorisation 
and extension of services processes towards CCPs but also towards CCPs' users in order 
to allow them to get more visibility of the authorisation process and its consequences (i.e. 
entry into force of EMIR requirements, potential clearing obligations, etc.). In particular, 
they  suggested  that  EMIR  should  require  the  competent  authority  to  publicly  disclose 
when a CCP's authorisation application has been deemed complete.  

Some  authorities,  industry  participants,  and  market  infrastructure  operators  suggested 
that EMIR should clarify the modalities for the college process, in particular the roles and 
responsibilities  of  different  college  members.  Several  authorities  and 
industry 
participants, and market infrastructure operators also asked for more clarity in the process 
and timeframe for the authorisation and extension of services provided by CCPs.  

In  addition,  two  investment  managers  expressed  the  view  that  the  number  of  national 
competent authorities (NCAs) within the college should be large, as many countries are 
concerned with the cross-border activities of CCPs.  

1.2.1.4. Procyclicality  

a) Adequacy of EMIR requirements to limit procyclical effects on CCPs’ financial 
resources  

The views of respondents to this question were split. About half of the respondents that 
expressed  a  clear  view  (mainly  public  authorities  and  market  infrastructure  operators) 
considered  that  the  current  requirements  of  EMIR  were  adequate  to  limit  procyclical 
effects  on  CCPs’  financial  resources,  even  if  some  of  them  recognised  that  there  was 
room for improving the anti-procyclicality requirements.  

The other half (in particular investment managers and industry associations) considered 
that  the  current  anti-procyclicality  tools  were  not  optimal  to  manage  some  specific 
products and suggested that EMIR allow some flexibility in the tools either by allowing 
additional tools or by adopting an outcome based approach.  

Some public authorities and industry associations asked for more transparency in a CCP 
anti-procyclicality requirements notably in order to allow clearing members to anticipate 

101 

 
 
changes  and  corresponding  liquidity  needs.  Some  of  them  suggested  CCPs  to  have 
documented  policies  on  their  overall  anti-procyclicality  framework.  Furthermore,  some 
industry participants expressed concerns about sudden changes by a CCP of its eligibility 
criteria/margin levels and the need to avoid a sudden material increase of initial margin 
(or haircuts).  

As  to  the  range  of  collateral  accepted,  some  industry  associations  pointed  out  that  any 
limitation in the list of assets which are defined as eligible should be avoided and that a 
wider range of financial instruments should be allowed to be posted in addition to cash.  

Some  of  these  respondents  added  that  some  of  the  pro-cyclical  effects  were  caused  by 
clearing  members  and  brokers  themselves,  as  they  often  require  higher  margins  than 
specified  in  the  policies  of  the  CCPs  and  increase  haircuts  and  eligibility  criteria  at 
discretion. They suggested that the relationship between clearing and their clients should 
be  managed  by  EMIR.  Finally,  some  respondents  pointed  out  the  need  for  an 
internationally  consistent  framework  in  order  to  avoid  regulatory  arbitrage  and 
competitive distortions.  

b) Need to define additional capacity for authorities to intervene in this area  

Views  of  the  respondents  were  split  on  the  need  to  define  additional  capacity  for 
authorities to intervene in this area.  

Around half of the respondents to this question including public authorities, investment 
managers,  and  industry  associations  supported  the  need  for  additional  capacity  for 
authorities  to  intervene in  the  area of  the  anti-procyclical  effect  of  margining.  Some  of 
them  pointed  out  that  the  collateral  requirements  imposed  by  clearing  members  in 
addition  to  those  of  CCPs  maintain  some  form  of  procyclicality  in  the  system.  Others 
pointed  out  the  need  to  allow  ESMA  to  suspend  the  clearing  obligations,  to  adopt  a 
to  coordinate 
proposal  for  solid  and  clear  recovery  and  resolution  rules,  or 
macroprudential policies at EU level, including the potential introduction of time-varying 
minimum margin requirements and haircuts in order to address systemic risks.  

The remainder of the respondents, including public authorities, industry associations and 
market  infrastructures,  were  not  in  favour  of  introducing  any  additional  capacity  for 
authorities to intervene further as the current standards  were already restrictive  and did 
not allow for CCPs to have the necessary flexibility to efficiently address the procyclical 
nature of the products they clear and markets they serve. They insisted that CCPs should 
remain  responsible  for  the  establishment  and  application  of  their  risk  management 
process. Some respondents pointed that there was no evidence, at this stage, that existing 
requirements were insufficient to adequately limit procyclicality.  

1.2.1.5. CCP margins and collateral  

a) CCPs’ policies on collateral and margin  

The majority of respondents, mainly trade associations, investment managers, and market 
infrastructures,  considered  that  CCPs’  policies  on  collateral  and  margins  were  not 
developed  in  a  balanced  and  effective  way.  The  most  commonly  noted  issues  were  the 
following:  

-  Non-financials  from  Nordic  Member  States  and  some  industry  associations 
pointed  out  that  non-collateralised  bank  guarantees  should  be  permitted  as 
eligible collateral.  
Industry  associations  and  banks  asked  for  more  transparency  in  the  way  that 
CCPs  calculate  margins  and  default  fund  contributions  and  asked  CCPs  to 
facilitate the use of non-cash variation margin.  

- 

102 

 
 
-  CCPs and industry associations asked for a revision of the provisions on portfolio 
margining. In particular, respondents asked for these provisions to be more model 
neutral  and  to  ensure  that  the  scope  of  instruments  is  less  reliant  on  statistical 
criteria.  

b) Spectrum of collateral eligible to be posted with CCPs  

The  majority  of  respondents,  mainly  CCP  users  (non-financials,  trade  associations, 
investment managers, pension companies, energy companies, banks) considered that the 
spectrum of eligible collateral did not strike the right balance between the liquidity needs 
of the CCP and its participants. The most commonly raised issue was that the variety of 
eligible collateral should be as wide as possible, with one common reason being that it is 
difficult  for  UCITS  to  access  liquidity.  More  specifically,  some  respondents  requested 
that  warrants  used  for  metal  trading  be  added  to  the  list  of  highly  liquid  financial 
instruments.  

1.2.2. General questions  

1.2.2.1. Definitions and scope  

Most  respondents,  including  mainly  industry  associations,  companies,  and  public 
authorities,  considered  that  some  of  the  provisions  and  definitions  contained  within 
Article 1 and 2 of EMIR had created unintended consequences in terms of the scope of 
contracts or entities that are covered by the requirements. In particular, they pointed out 
the  absence  of  a  definition  of  an  'undertaking'  for  the  determination  of  a  non-financial 
counterparty,  the  external  reference  to  MiFID  for  the  definition  of  derivatives,  the 
absence of clarity of the EMIR exemption for a "public sector entity", the application of 
EMIR to small non-financial and financial counterparties with the special consideration 
of Alternative Investment Funds, the absence of clarity of the definition of a 'group' (e.g. 
special treatment for securitisation special purpose vehicles), and the need for additional 
exemptions, in particular for the exemption of counterparties' transactions with exempted 
entities.  

1.2.2.2. Clearing obligations  

With respect to access to clearing for counterparties, a number of industry associations, 
companies  and  public  authorities  indicated  that  unforeseen  difficulties  had  arisen  with 
respect  to  establishing  client  clearing  relationships  in  accordance  with  EMIR.  In 
particular, respondents pointed out the absence of a sufficient and good offer for indirect 
clearing, amongst other things due to the leverage ratio. They questioned the necessity of 
the  so-called  frontloading  requirements.  They  also  mentioned  the  need  to  introduce 
exemptions  from  clearing  and  margining  requirements  for  transactions  resulting  from 
risk  reducing  processes  as  well  as  for  counterparties  which  are  not  systemically 
important,  in  particular  small  financial  counterparties.  Finally,  they  indicated  that  there 
was a need  to  introduce a process to  allow for  a swift withdrawal  or  suspension  of the 
clearing obligation.  

1.2.2.3. Trade reporting  

Trade reporting received a lot of attention. Most of the respondents considered that there 
were  significant  ongoing  impediments  or  unintended  consequences  with  respect  to 
meeting  trade  reporting  obligations.  Respondents  to  this  question  were  diverse  and 
included industry associations, companies, public authorities, consultancies, NGOs, and a 
trade  union.  A  large  number  of  them  asked  to  have  double-sided  reporting  –  which  is 
considered  as  costly  and  burdensome  –  replaced  with  single  sided  reporting.  They 

103 

 
 
 
consistently asked for a reduction in the reporting requirements for non-financials. Both 
of these issues were raised by all categories of respondents.  

In  addition,  industry  associations  and  companies  requested  the  removal  of  the 
requirement  to  report  expired  trades  ('backloading'),  as  well  as  an  exemption  of 
exchange-traded derivatives and intragroup transactions from the reporting requirements.  

Respondents identified several other points to be considered:  

  simplification, reduction of the number, and improvement in the definitions of the 

reporting fields;  
resolution of problems with the use of the LEI ;  

 
  alignment of reporting regimes and standardisation of data reporting formats;  
 

finalisation of work on the Unique Trade Identifier (UTI) and the Unique Product 
Identifier (UPI);  
improvement in trade reconciliation within trade repositories.  

 

1.2.2.4. Risk mitigation techniques  

Most  respondents  did  not  take  a  clear  position  on  this  question.  However  some 
companies  and  industry  associations,  mainly  in  banking,  considered  that  there  were 
significant  ongoing  impediments  or  unintended  consequences  with  respect  to  meeting 
risk mitigation obligations. They indicated that longer timeframes should be provided for 
counterparties  to  confirm  bespoke  trades  and  to  a  lesser  extent  small  transactions.  In 
addition, some respondents in the field of investment management and banking indicated 
that  EMIR  should  expressly  recognise  that  not  all  gaps  in  portfolio  reconciliation  are 
disputes.  

1.2.2.5. Exchange of collateral  

the  most  significant  ongoing 
Industry  associations  and  companies  considered 
impediments  or  unintended  consequences  with  respect  to  meeting  obligations  to 
exchange  collateral  to  be  the  treatment  of  transactions  with  third  country  jurisdictions 
that  do  not  recognise  netting.  Some  also  called  for  the  scope  of  affected  entities  to 
exclude non-financial and small financial counterparties.  

1.2.2.6. Cross-border activity in the OTC derivatives markets  

The majority of respondents to this question, including companies, industry associations, 
and public authorities considered that there were provisions or definitions within EMIR 
that pose challenges for EU entities when transacting on a cross-border basis.  

Specifically, industry associations considered that the European Commission was taking 
too  long  to  complete  its  equivalence  assessments  under  EMIR.  The  same  industry 
associations,  as  well  as  companies,  indicated  that  further  harmonisation  of  EMIR  with 
regulations 
liquidity 
fragmentation as a result of differing rules.  

third  countries  was  needed,  noting 

the  possibility  of 

in 

Most respondents, mainly companies from the financial sector and industry associations, 
considered  that  some  provisions  within  EMIR  created  a  disadvantage  for  EU 
counterparties  over  non-EU  entities.  They  principally  indicated  that  the  stringency  of 
some  EU  requirements  compared  to  requirements  in  other  jurisdictions  could  lead  to 
regulatory arbitrage.  

1.2.2.7. Transparency  

Most  respondents  to  this  question  considered  that  there  were  significant  ongoing 
impediments to ensuring that national competent authorities, international regulators, and 

104 

 
 
 
the  public  have  the  envisaged  access  to  data  reported  to  trade  repositories.  The 
respondents were mainly companies, industry associations, and public authorities.  

The  main  issues  raised  in  response  to  this  question  (and  the  category  of  respondents 
which raised them) are as follows:  

i. 

ii. 

iii. 

iv. 

v. 

companies and industry associations pointed out problems with or lack of 
consolidated / aggregated reporting by trade repositories;  
public authorities indicated that EMIR should allow access to reported data by a 
broader range of authorities;  
companies suggested that trade repositories should provide spreadsheet to 
highlight mismatches;  
industry associations brought up difficulties with confidentiality/ bank secrecy 
rules;  
some companies and industry associations suggested that the use of UTI/UPI 
should become mandatory in line with the suggestion in response to finalise work 
on the development of the UTI and UPI.  

In addition to the above, respondents raised several issues individually, such as: the need 
to oblige trade repositories to disclose data automatically and without restriction; allow 
access  to  more  data;  create  a  centralised  data  point  for  trade  repositories;  introduce 
controls  and  safeguards  on  trade  repositories'  pricing;  clarify  or  standardise  access 
requirements 
access 
requirements/withdraw  the  requirement  for  an  international  agreement;  provide  better 
guidance; or establish a single pan-European trade repository.  

repositories 

authorities; 

public 

trade 

relax 

for 

to 

1.2.2.8. Requirements for CCPs  

Most respondents considered there were significant ongoing impediments or unintended 
consequences  with  respect  to  CCPs’  ability  to  meet  EMIR  requirements.  In  particular, 
some non-financials and industry associations from the Nordic Member States repeated 
their call for the acceptance of non-collateralised bank guarantees.  

Investment managers called for more transparency or homogeneity on the different levels 
of client segregation available. CCPs asked not have to make additional contributions to 
loss absorbing resources, and some industry associations called for a mechanism to allow 
suspension of the clearing obligation.  

Concerning the issues of risk management and client asset protection, respondents' views 
were  split  as  to  whether  the  EMIR  requirements  were  sufficiently  robust  to  ensure 
appropriate  levels  of  risk  management  and  client  asset  protection  with  respect  to  EU 
CCPs and their participants.  

Some  respondents  called  for  further  precision  of  CCP  requirements  to  achieve  a  more 
consistent application by authorities across the Union. Public authorities called for more 
precision  in  how  significant  changes  to  CCPs'  risk  models  are  validated  and  on  how 
limits to portfolio margining are applied. Industry associations requested a greater role in 
the risk committee's oversight of CCPs' risk management standards.  

1.2.2.9. Requirements for trade repositories  

Most  respondents,  mainly  companies,  industry  associations  and  public  authorities, 
considered 
trade  repositories  raised  significant  ongoing 
impediments  or  unintended  consequences.  The  respondents  pointed  to  a  very  wide 
variety of issues, with none predominating.  

that  requirements  for 

105 

 
 
Some  companies  and  industry  associations  requested  that  access  by  end  users  to  data 
reported on their behalf should be ensured. They also suggested that EMIR should ensure 
effective  interoperability  between  trade  repositories  and  that  homogeneous  validation 
rules  between  trade  repositories  are  rigorously  enforced.  Several  public  authorities 
suggested that ESMA should  validate and have the  right to oppose  material changes to 
the conditions for registration of a trade repository.  

Additionally, there were a large number of items  identified by one or two respondents. 
These include: introducing a requirement for trade repositories to rectify breaches within 
a specific time; modification of the method of trade repositories' fee calculation; making 
trade repositories more transparent; provision of a mandate to ESMA to harmonise trade 
repositories operations; improve the communication by trade repositories on key issues; 
making trade repositories subject to a periodic license renewal; and requiring porting.  

1.2.2.10. Additional stakeholder feedback  

Some  respondents  indicated  that  there  were  impediments  or  unintended  consequences 
with respect to requirements or provisions under EMIR not referenced in the preceding 
questions.  The  range  of  issues  noted  included  the  interaction  of  EMIR  with  other 
legislation  (including  CRR  and  MiFIR),  possible  financial  stability  risks  introduced  by 
the  concentration  of  exposures  in  a small  number  of  CCPs,  and  overreliance  on  Q&As 
published by ESMA to offer clarity on EMIR requirements. 

106 

 
 
 
 
2. Stakeholder consultation in the framework of the "Call for Evidence" 

2.1. Overview 

In  a  related  area,  on  30  September  2015  the  European  Commission  launched  a  public 
consultation  entitled  "Call  for  Evidence".  The  purpose  of  the  Call  for  Evidence  was  to 
consult  all  interested  stakeholders  on  the  benefits,  unintended  effects,  consistency  and 
coherence  of  the  EU  regulatory  framework  for  financial  services  and  the  impact  of  the 
regulatory framework for financial services on the ability of the economy to finance itself 
and  grow.  In  particular,  the  consultation  sought  feedback,  concrete  examples  and 
empirical evidence on the impact of rules adopted to date. The Commission received 288 
responses to the consultation from stakeholders in 25 different countries.  

Chart –A3/1: Respondents by country 

Table A-3/1: Respondents by country 

Country of respondent  No. 
75 
United Kingdom 
52 
Belgium 
42 
France 
27 
Germany 
13 
The Netherlands 
9 
Sweden 
8 
Italy 
7 
Spain 
5 
Finland 
5 
Greece 
5 
Denmark 
4 
United States 
4 
Ireland 
4 
Croatia 
4 
Austria 
4 
Czech Republic 
4 
Norway 
4 
Switzerland 
3 
Malta 
3 
Luxembourg 
2 
Hungary 
1 
Slovakia 
1 
Poland 
1 
Guernsey and Jersey 
1 
South Africa 
TOTAL 
288 
Source: Call for Evidence database 

Source: Call for Evidence database 

Table A-3/2: Respondents by type 

Table A-3/3: Respondents by sector 

107 

UKBEFRDENLSEITESFIELDKOthers 
 
 
 
 
 
 
 
 
 
 
 
Type of respondent 
Public Authority 

Regulatory authority, Supervisory 
 Authority or Central bank 
Government or Ministry 
Regional or local authority 

Organisation 

Industry association 
Company, SME, 
micro-enterprise, sole trader 
Consultancy, law firm 
Consumer organisation 
Non-governmental organisation 
Think tank 
Trade union 
Academic institution 

Private Individual 
TOTAL 

No. 
29 

15 

13 
1 
246 
218 

89 
7 
7 
6 
4 
3 
2 
13 
288 

society 

infrastructure 

Sector of respondent 
Banking 
Investment management 
Insurance 
Market 
operator 
Pension provision 
Auditing 
Consumer protection 
Accounting 
Civil 
(advocacy, unions, NGOs) 
Other Financial services 
Credit rating agencies 
Corporate 
(governance, issuers, treasuries) 
Consultancy, law firm 
Telecommunication 
Social entrepreneurship 
Academia 
Energy 
Auto 
Real estate 
News 
Transport 
TOTAL 

Source: Call for Evidence database 

No. 
100 
79 
50 

39 

30 
21 
20 
19 

19 

19 
11 

11 

8 
8 
7 
7 
6 
2 
2 
1 
1 
288 

2.2. Content of responses 

Responses typically entailed multiple claims raised in relation to one or more of the 15 
categories of potential issues on which the Commission had invited input. A total number 
of 708 claims raised involved EMIR; of these, 278 claims were single legislation claims, 
i.e.  concerned  only  EMIR,  the  remaining  430  claims  were  cross-legislation  claims,  i.e. 
concerned the alleged cumulative effect of other pieces of legislation in conjunction with 
EMIR.  The  single  legislation  claims  involving  EMIR  were  largely  identical  to  those 
raised in the consultation for the EMIR Review, which had been held roughly six months 
earlier, and were largely submitted by the same stakeholders.164  

Since  cross-legislation  claims  concern  the  interaction  of  multiple  pieces  of  legislation 
such  claims  were  examined  by  dedicated  Call  for  Evidence  Task  Forces  and  may  be 
followed up in a separate process, where appropriate. It should be noted that such cross-
legislation claims cannot be addressed by the present initiative that focusses on making 
targeted adjustments to EMIR only. 

consultation 

closed  on  31 

The 
http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-
review/index_en.htm.  The  summary  of  contributions  received 
http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-
review/docs/summary-of-responses_en.pdf 

January  2016. 

can  be 

It 

found 

at 

is  available  at: 

A  public  hearing  was  held  in  Brussels  on  17  May  2016.  Information  can  be  found  at 
http://ec.europa.eu/finance/events/2016/0517-call-for-evidence/index_en.htm. 

164  No entirely new elements were raised. To avoid duplication, please refer to the section above detailing 

claims received in the context of the EMIR Review consultation. 

108 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
3. Meeting of the Derivatives and Market Infrastructures Member States Working 
Group  

3.1. Overview 

On 7 December 2016, the European Commission convened a meeting of the Derivatives 
and Market Infrastructures Member States Working Group to present  the main findings 
of  the  Commission's  report  on  EMIR  published  on  23  November  2016  and  to  seek  the 
views  of  the  members  of  this  expert  group  on  the  issues  identified  in  the  report.  The 
meeting was not public.  Participants in the meeting included representatives of Member 
(e.g.  Ministries,  National  Competent  Authorities  and  Central  Banks), 
States 
representatives of EU institutions and authorities (e.g. European Parliament, Council of 
the European Union, ECB, and European Securities and Markets Authority), as well as 
the Secretariat of the European Free Trade Area (EFTA). The summary below provides a 
full list of participants. 

3.2. Summary of the meeting 

The  Commission  services  briefly  introduced  the  main  findings  of  the  EMIR  report, 
highlighting that the main message is that EMIR appears to be  meeting its objective to 
increase  transparency  and  mitigate  systemic  risk  in  the  OTC  derivatives  market.  No 
fundamental  change  is  required  to  its  core  requirements.  Nevertheless,  the  report 
identified  a  number  of  areas  where  targeted  action  could  help  meet  the  objectives  of 
EMIR in a more effective, efficient and proportionate way.  

The Commission services explained that the need (i) to eliminate disproportionate costs 
and burdens to small companies in the financial sector, and (ii) to simplify rules without 
putting  financial  stability  at  risk  is  why  the  EMIR  review  was  included  in  the  2016 
Commission's Regulatory Fitness and Performance programme (REFIT). Consequently, 
the Commission  will present  a proposal to  amend targeted aspects of EMIR during Q1 
2017, as announced in the 2016 Commission's work programme. 

The Commission services invited the expert group members to provide their views on the 
issues  identified  in  the  EMIR  report,  on  the  basis  of  short  issue  papers  circulated  in 
advance of the meeting. 

3.2.1 Targeted amendments to certain EMIR requirements 

The  majority  of  the  expert  group  members  who  took  the  floor  explicitly  supported  the 
targeted REFIT approach of the review, focussing on simplification and better calibration 
of  specific  requirements.  Two  Member  State  representatives  suggested  adding  issues 
linked  to  potential  CCP  market  concentration.  Another  Member  State  representative 
proposed  to  consider  portfolio  compression.  One  Member  State  delegation  suggested 
going beyond the scope of the REFIT approach and making more fundamental changes 
to EMIR, including i) stricter rules on third-country CCP equivalence, ii) the introduction 
of an obligation to clear in the EU euro-denominated derivatives. A representative from a 
European authority seconded point i). 

The  Commission  services  took  note  of  the  general  support  for  a  targeted  approach.  On 
CCP market concentration, the Commission services said that it would take into account 
ongoing  developments  in  relevant  international  standards,  in  the  context  of  the 
Commission's proposal on CCP Recovery and Resolution, published in November 2016. 
On the third-country regime, it was highlighted that EMIR already provides room for a 
proportionality approach in the assessment of third countries.  In addition, any possible 
modification of the third-country regime should be considered at horizontal level, as it is 
not specific to EMIR. On the last issue, the Commission services recalled that the EMIR 

109 

 
 
review  is  based  on  two  consultations  and  aimed  at  simplifying  and  improving  the 
existing  rules.  Issues  relating  to  the  broader  context  will  be  further  assessed  and 
developed in due time taking into consideration future developments.   

3.2.2.  Pension  scheme  arrangements  (PSAs)  –  calibrating  the  clearing 
exemption 

The  majority  of  the  expert  group  members  who  took  the  floor  supported  a  new 
transitional  exemption  on  the  ground  that  no  solution  facilitating  the  participation  of 
PSAs  is  expected  to  emerge  in  the  short  term  and  taking  into  account  the  specific  risk 
profile  of  PSAs.  One  member  State  representative  raised  the  need  to  maintain  a  level 
playing field between PSAs and other financial end-users, such as insurers, UCITS and 
AIFs which face the same constraints as PSAs. Member State representatives highlighted 
that  incentives  should  be  created  for  CCPs  and  clearing  members  to  offer  the  right 
solutions.  In  particular,  several  Member  State  representatives  considered  that  the 
proposed  amendment  to  the  Capital  Requirement  Regulation  on  the  calculation  of  the 
leverage  ratio  (not  including  the  provision  of  clearing  services)  might  help  in  the 
development  of  solutions  for  central  clearing.  Representatives  of  Union  bodies  and 
authorities  called  for  caution  on  any  solution  requiring  CCPs  to  accept  non-cash 
collateral.  

3.2.3. Non-financial counterparties (NFCs) – calibrating the clearing and 
bilateral margining requirements 

All  the  expert  group  members  who  took  the  floor  expressed  support  for  improving  the 
proportionate approach applied to NFCs under EMIR so that it captures only the NFCs 
that are systemically important. Several possible amendments were discussed on how to 
reach  this  goal.  A  number  of  Member  State  representatives  expressed  support  for 
removing  the  hedging  exemption  and  increasing  the  thresholds  to  facilitate  the 
enforcement  of  the  rules.  Other  representatives  expressed  support  for  maintaining  the 
hedging  definition  in  order  to  identify  the  purpose  of  the  transaction  considered  (i.e. 
hedging  or  speculative  purpose),  while  exploring  additional  ways  to  improve  the 
proportionality  of  the  requirement,  including  adjustments  to  the  existing  clearing 
threshold  that  differentiates  NFCs  that  are  subject  to  the  clearing  obligation  (NFCs+) 
from  those  that  are  not  (NFC-,  e.g.  below  €1bn  in  gross  notional  value  for  credit  and 
equity derivatives and below €3bn for IRS, FX or commodity derivatives), according to 
the volume of derivative contracts transacted by the NFC. One member state suggested to 
consider narrowing the definition by excluding “quasi-financials”. 

3.2.4. Small financials – calibrating the clearing obligation 

Most  expert  group  members  were  in  favour  of  adjusting  the  scope  of  the  clearing 
obligation  applying  to  financial  counterparties  (FCs)  in  order  to  make  the  clearing 
requirement more proportionate. This could involve exempting from mandatory clearing 
only  the  very  small  financial  counterparties,  in  order  not  to  compromise  EMIR's 
objective  to  increase  financial  stability.  A  number  of  Member  State  representatives 
highlighted the need to consider the consequences of removing very small financials on 
the NFC regime and to limit the exemption to very small financials in order to avoid the 
development of a two-tiered market for standardised derivative contracts, with on the one 
hand centrally cleared contracts and on the other hand bilaterally cleared contracts.  

3.2.5. Intragroup transactions – simplifying reporting requirements 

All the expert group members who took the floor expressed support for simplifying the 
reporting  requirement  of  intragroup  transactions  (IGTs).  A  few  possible  ways  forward 
were  discussed,  highlighting  the  need  to  capture  only  IGTs  that  carry  systemic  risk. 

110 

 
 
Several  representatives  of  Member  States  considered  that  the  obligation  could  be 
removed  for  the  NFC-  category.  One  Member  State  representative  mentioned  that  it 
should be removed for all NFCs, while another said that IGTs should be reported by only 
one  of  the  counterparties.  Representatives  of  Union  bodies  and  authorities  called  for 
caution not to eliminate access to the related reported data for supervisors. 

3.2.6. Exchange-traded derivatives – reducing the reporting obligation 

All  expert  group  members  agreed  that  there  was  room  for  simplifying  reporting 
requirements on exchange-traded derivatives (ETDs). Several possible amendments were 
discussed. One Member State representative considered that the reporting should be done 
by the trading venue and not the counterparties, while another was open to remove ETD 
reporting  under  EMIR  (to  trade  repositories)  and  leave  it  to  MiFIR  (to  National 
Competent  Authorities).  Representatives  of  Union  bodies  and  authorities  called  for 
keeping  the  data  in  trade  repositories  as  it  facilitates  monitoring  of  the  overall  market. 
Several Member State representatives mentioned that the solution could be single-sided 
reporting for ETD transactions. 

3.2.7. Simplifying double-sided reporting 

There was general support for simplifying double-sided reporting, with several possible 
amendments  put  forward.  There  was  consensus  that  dual-sided  reporting  aims  at 
providing  accurate  and  valuable  data  to  be  used  by  regulators.  A  number  of  Member 
State  representatives  supported  the  approach  of  the  Securities  Financing  Transactions 
Regulation  (SFTR)  to  introduce  single-sided  reporting  only  for  NFCs-.  A  couple  of 
Member State representatives voiced support for exploring the possibility of single-sided 
reporting for all NFCs. One expert group member was open to single-sided reporting for 
all counterparties; this was also a long term goal for another Member State representative 
and  a  Union  body,  but  only  once  the  quality  of  data  could  be  ensured.  A  couple  of 
Member State representatives suggested reducing the number of fields to be reported to 
alleviate the administrative burden. 

3.2.8. Trade Repositories – improving the quality of data 

All  the  expert  group  members  who  took  the  floor  stressed  that  the  common  goal  is  to 
keep  pace  with  international  standards  (e.g.  development  of  Unique  Product  Identifier 
and Unique Transaction Identifier); a representative from an EU authority explained the 
related  ongoing  work  in  that  direction  and  called  for  more  effective  and  efficient 
supervisory powers.   

3.2.9.  Client  and  indirect  client  clearing  -  addressing  lack  of  access  to 
clearing 

Expert group members voiced support for addressing the lack of access to clearing. Some 
encouraged  further  reflection  on  direct  clearing  models.  Some  considered  that  the 
Commission's proposal to amend the Capital Requirement Regulation on the calculation 
of  the  leverage  ratio,  published  in  November  2016,  might  help  facilitate  access  to 
clearing.  A  couple  of  Member  State  representatives  were  open  to  considering  targeted 
amendments  to  EMIR  to  clarify  the  interaction  between  EMIR's  default  management 
tools  and  national  insolvency  laws  in  order  to  better  protect  clients.  The  Commission 
noted that one Member State had introduced this clarification in national law. In addition, 
there was general support from expert group members for applying fair, reasonable and 
non-discriminatory  commercial  terms  (FRAND  terms)  to  the  provision  of  clearing 
offerings.  

3.2.10. Increasing transparency of CCP margin requirements 

111 

 
 
A  majority  of  representatives  from  Member  States,  Union  bodies  and  authorities 
expressed  support  for  increasing  the  transparency  of  CCP  margin  requirements.  One 
Member State suggested introducing CCP margin caps to increase predictability; several 
representatives of Member States, Union bodies and authorities cautioned against such an 
approach, as it could lead to CCPs being not sufficiently collateralised. 

3.2.11. Other issues 

A  majority  of  expert  group  members  expressed  support  for  the  need  to  remove  the 
obligation  to  report  historical  trades,  i.e.  derivative  transactions  concluded  before  the 
start  of  the  reporting  obligation  in  February  2014  (referred  to  as  'backloading')  to 
simplify the reporting requirements. 

A consensus emerged from the expert group on a number of additional issues, including 
on  (i)  the  need  to  increase  the  basic  amount  of  fines  that  ESMA  can  impose  on  trade 
repositories to make these fines more efficient and dissuasive, (ii) the need to remove the 
obligation  to  clear  certain  OTC  derivative  contracts  concluded  before  the  clearing 
obligation takes effect (referred to as the frontloading obligation) to simplify the clearing 
obligation, (iii) the need to introduce a mechanism to suspend the clearing obligation in 
specific cases, and (iv) the need to provide a mandate for initial margin model approval 
for uncleared contracts.  

3.3. Meeting conclusions  

The Commission's services thanked the expert group members for the exchange of views 
and  invited  them  to  provide  further  input  via  written  comments.    The  Commission's 
services  indicated  that  the  views  from  the  representatives  of  Member  States,  Union 
bodies and authorities would feed into the impact assessment report that will accompany 
the legislative proposal. The impact assessment will further explore the issues identified 
in the Commission's EMIR report and assess various policy options to address them. 

3.4. List of participants 

1.  Permanent Representation of Belgium 
2.  Financial Services and Markets Authority (FSMA), Belgium  
3.  National Bank of Belgium 
4.  Financial Supervision Commission, Bulgaria 
5.  Ministry of Finance, Czech Republic 
6.  Danish Financial Supervisory Authority, Denmark 
7.  Federal Financial Supervisory Authority (BaFin), Germany 
8.  Deutsche Bundesbank, Germany 
9.  Bundesministerium der Finanzen, Germany 
10. Permanent Representation of Germany 
11. Ministry of Finance, Estonia 
12. Central Bank of Ireland 
13. Department of Finance, Ireland 
14. Comisión Nacional del Mercado de Valores (CNMV), Spain 
15. Banco de España, Spain 
16. Treasury and Financial Policy General Secretary, Spain 
17. Banque de France 
18. Direction générale du Trésor, France 
19. Autorité de Contrôle Prudentiel et de Résolution, France 
20. Autorité des Marchés Financiers, France 
21. Permanent Representation of Croatia 
22. Banca d'Italia  

112 

 
 
23. Ministry of economy and finance Treasury Department, Italy 
24. CONSOB, Italy 
25. Cyprus Securities and Exchange Commission, Cyprus 
26. Ministry of Finance, Latvia 
27. Ministry of Finance, Lithuania 
28. Commission de Surveillance du Secteur Financier (CSSF), Luxembourg 
29. Banque centrale du Luxembourg (BCL) 
30. Ministry of Finance, Luxembourg 
31. Permanent Representation of Hungary 
32. Ministry for National Economy, Hungary 
33. Financial Services Authority, Malta 
34. Ministry of Finance, The Netherlands 
35. Financial Market Authority, Austria 
36. Federal Ministry of Finance, Austria 
37. Ministry of Finance, Poland 
38. Ministry of Finance, Portugal 
39. Banco de Portugal 
40. Securities Market Commission (Comissão do Mercado de Valores Mobiliários), 
Portugal 
41. Financial Supervisory Authority, Romania 
42. National Bank of Romania 
43. Ministry of Finance, Slovak Republic 
44. Ministry of Finance, Finland 
45. Ministry of Finance, Sweden 
46. HM Treasury, United Kingdom 
47. Financial Conduct Authority, United Kingdom 
48. Bank of England 
49. ECON Committee Secretariat, European Parliament 
50. Council Secretariat, Council of the European Union 
51. European Central Bank (ECB) 
52. European Securities and Markets Authority (ESMA) 
53. European Free Trade Association (EFTA) 

113 

 
 
 
 
ANNEX 5: EVALUATION  

Section 1 Executive Summary 

The European Market Infrastructure Regulation (EMIR – Regulation 648/2012) aims to 
reduce  systemic  risk  by  increasing  the  transparency  of  the  over-the-counter  (OTC) 
derivatives  market,  by  limiting  the  counterparty  credit  risk  and  by  reducing  the 
operational risk associated with OTC derivatives.  

EMIR implements the commitment by G20 leaders in Pittsburgh in September 2009 that 
all  standardised  OTC  derivatives  contracts  should  be  cleared 
through  central 
counterparties,  and  that  OTC  derivatives  contracts  should  be  reported  to  trade 
repositories. EMIR entered into force on 16 August 2012. 

EMIR has been included in the 2016 Commission's Regulatory Fitness and Performance 
programme  (REFIT).  Inclusion  in  the  REFIT  programme  was  justified  by  the  need  to 
simplify targeted areas of EMIR and make them more proportionate, as evidenced by the 
contributions to the public consultation on EMIR and the Call for Evidence on financial 
regulation, as well as by the Commission's review of the application of EMIR, carried out 
in accordance with Article 85(1) of EMIR.  

In this context, the purpose of this evaluation is to assess to what extent specific policy 
requirements  in  EMIR  have  met  their  objectives  and  in  particular  whether  these 
requirements have done so in an efficient and effective way, while at the same time being 
coherent, relevant and providing EU added-value. 

Given that some of the core requirements of EMIR have only recently become applicable 
or are not applicable yet, this assessment does not constitute a full evaluation of EMIR, 
due to the lack of adequate evidence and as it is too early to draw a firm conclusion on 
long-term  impacts.  Instead,  the  evaluation  assesses  whether  the  core  requirements  of 
EMIR to report OTC derivatives, to centrally clear standardised OTC derivatives, and to 
subject uncleared OTC derivatives to risk-mitigation techniques and margins rules have 
met the operational requirements to: i) obtain complete and comprehensive information 
on  OTC  derivatives  positions,  ii)  increase  the  use  of  CCP  clearing,  and  iii)  improve 
bilateral  clearing  practices.  To  the  extent  possible,  the  evaluation  analysed  the 
performance  of  the  relevant  EMIR  requirements  in  the  context  of  the  five  evaluation 
criteria, in accordance with the Better Regulation guidelines. 

Given that the evaluation has been conducted in parallel with the EMIR review, it has fed 
into  the  problem  definition  of  the  impact  assessment  (IA)  accompanying  the  EMIR 
REFIT initiative, and is presented as an annex to the IA.  

This  evaluation  is  based  primarily  on  the  results  of  consultations  with  stakeholders, 
regular  exchanges  with  Members  of  the  European  Parliament  and  experts  from  the 
Member  States,  reports  from  the  European  Securities  and  Markets  Authority  (ESMA), 
the European Systemic Risk Board (ESRB), and the European System of Central Banks 
(ESCB), and additional desk research of the Commission services. More specific sources 
included:  

114 

 
 
 
 
 
 
 
 
 
  The EMIR review report165; 
  Two  public  consultations:  (i)  a  public  consultation  on  the  implementation  of 
EMIR166,  and  (ii)  the  Call  for  evidence  on  the  EU  regulatory  framework  for 
financial services in the framework of the CMU initiative167; 

  A public hearing on the review of EMIR Regulation held on 29 May 2015168; 
  Reports  from  ESMA169,  ESRB170,  and  ESCB171  (European  System  of  Central 
Banks) on the implementation of EMIR, as required by Article 85(1) of EMIR; 
  A  report  adopted  in  February  2015  assessing  the  progress  and  effort  made  by 
CCPs in developing technical solutions for the transfer of non-cash collateral by 
pension scheme arrangements (PSAs)172; 

  Statistics and reports published by the Financial Stability Board (FSB)173 and the 

Bank of International Settlements (BIS)174. 

On  the  basis  of  the  above-mentioned  evidence,  this  evaluation  has  considered  the 
following five criteria to assess the core requirements of EMIR:    

  Efficiency 
  Effectiveness 
  Relevance 
  Coherence 
  Added-value of EU action 

On  the  effectiveness  and  efficiency  of  the  core  requirements  of  EMIR,  the  evaluation 
indicates that, while i) the volume of reported trades has improved, ii) the use of central 
clearing has increased and iii) the introduction of risk-mitigation techniques and margin 
requirements for uncleared trades has been completed, preliminary findings suggest that 
(i) the reporting requirement applying to transactions may be simplified to increase 
transparency in the  OTC derivatives  market. The evaluation also  highlights that  (ii) 
obstacles  to  access  central  clearing,  affecting  in  particular  smaller  counterparties, 
may limit the effectiveness of the clearing obligation. Initial results also indicate that 
(iii) EMIR may impose in certain areas disproportionate costs/burdens for certain 
counterparties  that  sit  on  the  periphery  of  the  derivatives  trading  network  (e.g. 
small  financials  and  NFCs).  The  asymmetric  distribution  of  the  derivatives  market 
amongst counterparties, with smaller counterparties accounting for a limited share of the 

165  http://ec.europa.eu/finance/financial-markets/docs/derivatives/161123-report_en.pdf  
166  http://ec.europa.eu/finance/consultations/2015/emir-revision/index_en.htm 
167  http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm 
168  http://ec.europa.eu/finance/events/2015/0529-emir-revision/index_en.htm 
169  ESMA provided several reports on the EMIR review in August 2015: see ESMA review report no 1 
(use  of  OTC  derivatives  by  non-financial  counterparties);  ESMA  review  report  no  2  (efficiency  of 
margining requirements to limit procyclicality); ESMA review report no 3 (segregation and portability 
requirements); and ESMA review report no 4 (input as part of the Commission's public consultation on 
EMIR). 

170  ESRB  Report  on  the  efficiency  of  margining  requirements  to  limit  pro-cyclicality  and  the  need  to 

define additional intervention capacity in this area, July 2015. 

171  ESCB,  Report  of  the  ESCB  on  the  need  for  any  measure  to  facilitate  the  access  of  CCPs  to  central 

bank liquidity. 

172  http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015DC0039 
173  In particular, FSB OTC Derivatives Market Reforms - 11th progress report, August 2016. 
174  In particular, BIS, Triennial Central Bank Survey of foreign exchange and OTC derivatives markets in 

2016; Semiannual OTC derivatives statistics; and Quarterly Review, December 2016. 

115 

 
 
 
 
 
                                                 
OTC derivative transactions, suggests that such adjustments, while making EMIR more 
proportionate, would not affect financial stability. 

In  terms  of  coherence,  EMIR  is  aligned  with  international  efforts  to  reform  the  global 
OTC derivatives market. At an internal level, EMIR is coherent with other pieces of EU 
legislation,  as  outlined  in  the  follow-up  to  the  Call  for  Evidence,  in  the  Commission's 
proposed  amendment  to  the  Capital  Requirement  Regulation,  and  in  the  proposal  for  a 
recovery  and  resolution  framework  for  CCPs.  In  terms  of  the  EU  added  value,  EMIR 
covered  a  gap  that  existed  in  legislation  by  introducing  a  new  framework  aiming  to 
address in a uniform process at EU level the lack of transparency of the OTC derivatives 
market and the related systemic risks.  

Section 2 Introduction 

Regulation  648/2012  on  OTC  derivatives,  central  counterparties  and  trade  repositories 
(EMIR)  entered  into  force  on  16  August  2012.  EMIR  aims  to  reduce  systemic  risk  by 
increasing the transparency of the over-the-counter (OTC) derivatives market, by limiting 
the  counterparty  credit  risk  and  by  reducing  the  operational  risk  associated  with  OTC 
derivatives.  

In accordance with Article 85(1) of EMIR, the Commission was mandated to carry out a 
review of the application of EMIR and to present any appropriate legislative proposals. 
In  this  context,  the  Commission  has  carried  out  an  extensive  assessment  of  the  rules 
currently in place, based in particular on a public consultation on EMIR and the Call for 
Evidence  on  financial  regulation,  both  carried  out  by  DG  FISMA  in  2015-2016.  In 
November  2016,  the  Commission  adopted  a  report  on  the  review  of  EMIR  (the  EMIR 
review  report)175.  The  report  identified  areas  for  which  targeted  action  is  necessary  to 
ensure fulfilment of the EMIR objectives in a more proportionate, efficient and effective 
manner. 

In  accordance  with  the  EMIR  review  report  and  further  analysis  conducted  in  this 
evaluation, the Commission considers proposing in 2017 a targeted legislative initiative 
on  EMIR.  This  initiative  is  part  of  the  2016  Commission's  Regulatory  Fitness  and 
Performance programme (REFIT).  

In this context, the purpose of this evaluation is to assess to what extent specific policy 
requirements  in  EMIR  have  met  their  objectives  and  in  particular  whether  these 
requirements have done so in an efficient and effective way, while at the same time being 
coherent,  relevant  and  providing  EU  added-value.  The  evaluation  has  fed  into  the 
problem definition of the impact assessment (IA) and is presented as an annex to the IA.  

EMIR  establishes  core  requirements  for  the  OTC  derivatives  market.  These  include 
reporting  requirements,  clearing  obligations,  margin  and  operational  risk-mitigation 
requirements  for  non-cleared  OTC  derivatives  transactions  and  requirements  for  trade 
repositories (TRs) and Central Counterparties (CCPs).  

175  COM(2016) 857 final of 23.11.2016. 

116 

 
 
 
  
 
 
 
 
 
 
                                                 
However,  certain  of  these  core  requirements  have  not  yet  been  implemented  or  the 
implementation is incomplete. In particular, at this stage, clearing obligations and margin 
requirements  in  respect  of  non-cleared  OTC  derivatives  transactions  are  not  yet  fully 
applicable. Therefore, due to the lack of adequate evidence, the evaluation cannot assess 
holistically the impact of EMIR. 

Nevertheless,  the  EMIR  review  report  identifies  a  number  of  issues  relating  to  the 
implementation of those requirements that already apply (namely, reporting to TRs and 
operational risk mitigation requirements), as well as issues encountered in preparing for 
the clearing and margin requirements.  

For  these  reasons,  the  evaluation  will  focus  on  whether  the  following  operational 
requirements of EMIR have been met: i) obtain complete and comprehensive information 
on  OTC  derivatives  positions,  ii)  increase  the  use  of  CCP  clearing,  and  iii)  improve 
bilateral  clearing  practices.  The  evaluation  will  also  assess  whether  these  EMIR 
requirements could be fine-tuned in order to simplify and increase the efficiency of the 
policy  framework  and  reduce  disproportionate  costs  and  burdens,  without  putting 
financial stability at risk. 

Section 3 Background to the initiative 

Description of the initiative and its objectives 

EMIR was published in the Official Journal of the European Union on 27 July 2012, and 
entered  into  force  on  16  August  2012.  Most  of  the  requirements  did  not  immediately 
become applicable, as EMIR empowered the Commission to adopt secondary legislation 
specifying the technical practicalities and the phase-in schedule of the core requirements. 
As  a  result,  the  main  elements  of  EMIR,  such  as  mandatory  clearing  and  margin 
requirements for uncleared derivatives, have either only recently come into operation or 
will soon start to apply. 

Recital (4) of EMIR provides a description of the objectives of the Regulation:  

"Over-the-counter derivatives (‘OTC derivative contracts’) 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." 

EMIR seeks to promote transparency and standardisation in the OTC derivatives market 
as well as reduce systemic risk through the application of its six core requirements: 

1.  Central clearing of standardised OTC derivative contracts; 
2.  Margin requirements for OTC derivative contracts that are not centrally cleared; 
3.  Operational risk mitigation requirements for OTC derivative contracts that are not 

centrally cleared; 

4.  Reporting of all derivative contracts; 

117 

 
 
 
 
 
 
 
 
 
 
 
5.  Requirements for CCPs; and 
6.  Requirements for TRs. 

EMIR seeks to address the three main problems identified in the IA that accompanied the 
EMIR proposal in 2010 (the 2010 IA) related to the functioning of the OTC derivatives 
market: i) the lack of transparency on positions and exposures, ii) insufficient mitigation 
of counterparty credit risk, and iii) insufficient mitigation of operational risks. 

The general policy objective of EMIR is to reduce systemic risk by increasing the safety 
and efficiency of the OTC derivatives market.  

The specific policy objectives of the EMIR Regulation are: 

1)  to increase the transparency of the OTC derivatives market for regulators, market 

participants and the public; 

2)  to reduce the counterparty credit risk associated with OTC derivatives; and 
3)  to reduce the operational risk associated with OTC derivatives. 

The intervention logic below provides a description - in a summarised diagram format - 
on  how  the  EMIR  Regulation  is  expected  to  work.  It  is  also  used  to  carry  out  the 
evaluation and answer specific questions. 

118 

 
 
 
 
 
 
asse 

Context 
G20 commitment to increase the stability of the OTC derivatives market (September 2009) 

Need 
Create a European framework to increase stability in the OTC derivatives market   

Specific objective  
Increase the 
transparency of OTC 
derivatives market 

Specific objective  
Reduce the 
counterparty credit 
risk 

Specific objective  
Reduce the 
operational risk 
associated with OTC 
derivatives 

EU input 
Regulation on OTC derivatives, central counterparties and trade repositories (EMIR):   
- Reporting of all derivative contracts to TRs 
- Mandatory clearing of standardised OTC derivative contracts 
- Margin and operational risk requirements for uncleared OTC derivative contracts 

Output 
Complete and 
comprehensive 
information on all 
derivatives positions 

Output 
Increased use of 
CCP clearing 

Output 
Improved bilateral 
clearing practices 

Result  
More information on OTC positions 
available to public, market 
participants, and regulators  

Result 
More standardised contracts subject 
to central clearing and risk-
management techniques for 
uncleared derivatives 

- Increased transparency of the OTC derivatives market 
- Increased mitigation of risk in the OTC derivatives market  
- Improved financial stability 

Impacts 

119 

 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Description of the situation before the adoption of EMIR  

The  financial  crisis  brought  the  OTC  derivatives  market  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 this market.  

According  to  the  2010  IA,  in  late  2009,  the  size  of  the  OTC  derivatives  market  by 
notional value amounted to approximately $615 trillion, a 12% increase with respect to 
the end of 2008. Zooming in on market  segments, the IA highlighted that, in 2007, the 
EU  accounted  for  63%  of  the  interest  rates  derivatives  market  and  54%  of  the  foreign 
exchange derivatives market, while the US accounted for 24% and 15%, respectively. 

In spite of the volume of the OTC derivative market, prior to EMIR, the OTC derivatives 
market was not regulated at EU level. The 2010 IA also indicated that the Commission 
services were not aware of legislative initiatives specifically targeting OTC derivatives at 
the level of individual Member States.  

Since October 2008, however, the Commission had been working actively to tackle the 
shortcomings that the financial crisis brought to light. In the short term, the Commission 
focused on the credit default swaps ('CDS') market and obtained a commitment from the 
major dealers to start clearing European-referenced CDS transactions through a CCP. In 
the medium term, it focused on an in-depth review of derivatives markets that resulted in 
the publication of two Communications on derivatives markets, respectively in July and 
October 2009. 

Given  the  global  nature  of  the  OTC  derivatives  market,  the  importance  of  an 
internationally  coordinated  approach  was  crucial.  In  September  2009  in  Pittsburgh,  the 
G20  leaders  agreed  that:  "All  standardised  OTC  derivatives  contracts  should  be  […] 
cleared through central counterparties by end-2012 at latest. OTC derivatives contracts 
should  be  reported  to  trade  repositories.  Non-centrally  cleared  contracts  should  be 
subject to higher capital requirements"176.  

EMIR  responded  to  the  G20's  commitment  to  increasing  the  stability  of  the  OTC 
derivatives market. Similar initiatives were undertaken across G20 jurisdictions, such as 
in  certain Asian countries  (Hong Kong, Japan, Singapore and South Korea), and in the 
US  via  the  Dodd-Frank  Wall  Street  Reform  and  Consumer  Protection  Act,  which  was 
signed into law in July 2010.   

The  2010  IA  identified  several  problems  relating  to  the  functioning  of  the  OTC 
derivatives market. Those included:   

  The  lack  of  information  available  to  regulators  and  market  participants  on 

positions and exposures of individual firms in OTC derivatives; 

  The  insufficient  mitigation  of  counterparty  credit  risk  associated  with  OTC 

derivatives; and 

  The  insufficient  mitigation  of  the  operational  risk  associated  with  OTC 

derivatives. 

176   http://www.g20.utoronto.ca/2009/2009communique0925.html  

120 

 
 
                                                 
EMIR was adopted to address these problems, by increasing the transparency of the OTC 
derivatives  market,  by  limiting  the  counterparty  credit  risk  and  by  reducing  the 
operational risk associated with OTC derivatives. 

Section 4 Evaluation Questions 

This section summarises the review questions addressed in this evaluation. 

Question 1: How effective has the EU intervention been? 
-  To  what  extent  have  the  operational  objectives  of  EMIR  to  i)  obtain  complete  and 
comprehensive  information  on  OTC  derivatives  positions,  ii)  increase  the  use  of  CCP 
clearing,  and  iii)  improve  the  management  of  risk  in  bilateral  clearing  practices,  have 
been achieved and what factors influenced the achievements observed? 

Question 2: How efficient has the EU intervention been? 

-  To  what  extent  have  EMIR's  core  requirements  on  reporting,  clearing,  and  risk-
mitigation 
for  market 
participants given the effects they have achieved in promoting transparency in the OTC 
derivatives market and in mitigating systemic risk? 

for  uncleared  derivatives  been  cost-effective 

techniques 

Question 3: How relevant is the EU intervention?  

-  To  what  extent  are  EMIR's  requirements  on  reporting,  clearing  and  risk-mitigation 
techniques for uncleared derivatives still relevant nearly a decade after the 2009 G20's 
commitment  to  increase  the  stability  of  the  OTC  derivatives  market  and  in  light  of 
current developments in this market?  

Question 4: How coherent is the EU intervention? 

-To  what  extent  are  EMIR's  requirements  on  reporting,  clearing  and  risk-mitigation 
techniques  for  uncleared  derivatives  coherent  with  other  pieces  of  EU  financial 
legislation,  such  as  the  Commission's  proposal  to  amend  the  Capital  Requirements 
Regulation,  the  Commission's  proposal  to  establish  a  framework  for  the  recovery  and 
resolution of CCPs, and the second Markets in Financial Instruments Directive and the 
related Regulation?  

Question 5: What is the EU-added value of the intervention?  

-  To  what  extent  EMIR's  requirements  on  reporting,  clearing  and  risk-mitigation 
techniques  for  uncleared  derivatives  have  helped  increase  the  stability  of  the  OTC 
derivatives  market,  taking  into  account  its  inherent  cross-border  nature,  and  to  what 
extent do the risks related to the lack of transparency in the OTC derivatives market and 
to  counterparty  credit  risks  in  cleared  and  uncleared  derivatives  markets  continue  to 
require action at EU level? 

Section 5 Methodology 

This  evaluation  is  based  primarily  on  the  results  of  consultations  with  stakeholders, 
reports  from  the  European  Securities  and  Markets  Authority  (ESMA),  the  European 

121 

 
 
 
 
 
 
 
Systemic Risk Board (ESRB), and the European System of Central Banks (ESCB), and 
additional desk research of the Commission services. More specific sources included:  

  The EMIR review report177; 
  Two public consultations:  

o  a public consultation on the implementation of EMIR for the purposes of 
the  review  mandated  under  Article  85(1)  of  EMIR178.  This  consultation 
took  place  between  19  May  and  13  August  2015  with  172  responses 
received  from  a  broad  range  of  stakeholders  across  the  EU,  as  well  as 
third countries; and  
the  Call  for  evidence  on  the  EU  regulatory  framework  for  financial 
services179  that  took  place  from  September  2015  to  January  2016  in  the 
framework of the CMU initiative. 278 respondents raised claims focused 
on provisions of EMIR. A detailed summary of the responses to the two 
consultations is provided in the respective feedback statements; 

o 

  A public hearing on the review of EMIR Regulation held on 29 May 2015180; 
  Reports  from  ESMA181,  ESRB182,  and  ESCB183  (European  System  of  Central 
Banks) on the implementation of EMIR, as required by Article 85(1) of EMIR; 
  A report assessing the progress and effort made by CCPs in developing technical 
solutions  for  the  transfer  by  pension  scheme  arrangements  (PSAs)  of  non-cash 
collateral  as  variation  margin,  as  well  as  the  need  for  any  measures  to  facilitate 
such solution, adopted on 3 February 2015184; 

  Statistics  and  reports  published  by  the  Financial  Stability  Board  (FSB)  and  the 

Bank of International Settlements (BIS). 

In  addition  to  these  sources,  the  Commission  services  also  considered  input  from  the 
European Parliament and the Member States. 

In  particular,  the  Commission  services  took  into  account  a  resolution  by  the  European 
Parliament  on  stocktaking  and  challenges  of  the  EU  Financial  Services  Regulation: 
impact  and  the  way  forward  towards  a  more  efficient  and  effective  EU  framework  for 
Financial  Regulation  and  a  Capital  Markets  Union,  adopted  in  January  2016185.  The 
Commission  services  also  engaged  in  regular  exchanges  with  MEPs  from  the  ECON 
Committee involved in the EMIR review, including via meetings in December 2016.   

The Commission services also held an exchange of views in December 2016 with experts 
from the Derivatives and Market Infrastructures Member States Working Group.   

177   Commission report COM(2016) 857 of 23.11.2016.  
178   http://ec.europa.eu/finance/consultations/2015/emir-revision/index_en.htm  
179   http://ec.europa.eu/finance/consultations/2015/financial-regulatory-framework-review/index_en.htm  
180   http://ec.europa.eu/finance/events/2015/0529-emir-revision/index_en.htm  
181   ESMA provided several reports on the EMIR review in August 2015: see ESMA review report no 1 
(use  of  OTC  derivatives  by  non-financial  counterparties),  ESMA  review  report  no  2  (efficiency  of 
margining requirements to limit procyclicality), ESMA review report no 3 (segregation and portability 
requirements), and ESMA review report no 4 (input as part of the Commission's public consultation on 
EMIR). 

182   ESRB  Report  on  the  efficiency  of  margining  requirements  to  limit  pro-cyclicality  and  the  need  to 

define additional intervention capacity in this area, July 2015. 

183   Report  of  the  ESCB  on  the  need  for  any  measure  to  facilitate  the  access  of  CCPs  to  central  bank 

liquidity.  

184  http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015DC0039  
185  European Parliament Resolution 2015/2106 (INI) of 19 January 2016. 

122 

 
 
                                                 
Limitations – robustness of findings 

While  EMIR  entered  into  force  in  August  2012,  certain  core  requirements  (including 
clearing  obligations  and  bilateral  margin  requirements)  provided  for  the  Regulation  are 
yet to be implemented or completed. This has a number of consequences. 

First,  it  means  that  a  full  evaluation  of  the  effectiveness  and  efficiency  of  EMIR  in 
meeting its objectives is not possible.  

Second, there is only a limited amount of quantitative evidence available to carry out the 
evaluation, as the experience drawn from the requirements that are applicable only spans 
a  couple  of  years.  In  the  specific  instance  of  margin  requirements,  there  is  no  data 
available, as margins rules only started to apply as of February 2017.  

Third,  the  building  of  consistent  data  sets  took  time  to  be  created  and  research  on  this 
data has only just begun. Obtaining complete and comprehensive information about the 
OTC derivatives market by requiring market participants to report trades was in itself one 
of the operational objectives of EMIR. The reporting obligation has been in application 
only  since  2014.  While  the  proportion  of  trades  covered  by  the  reporting  obligation  is 
broad, the evaluation highlights that there are concerns with regards to the quality and the 
usability of the data collected. There is therefore a limited set of EU-wide data available 
to carry out the evaluation. Nevertheless, the evaluation draws from the data collected by 
European public authorities and bodies (i.e. ESMA, ESRB, ESCB) on the basis of rules 
which  are  already  in  place  as  well  as  the  responses  to  the  public  consultations  and 
developments in third country jurisdictions. In addition, it is important to highlight that 
the  market  for  OTC  derivatives  is  global  and  highly  interconnected.  Therefore,  the 
relevance of EU-focused data is limited. Where there is no data available at EU level, the 
evaluation  will  rely  on  data  provided  by  international  institutions  involved  in  the 
monitoring  of  the  G20  reform  of  the  OTC  derivatives  reform,  such  as  the  Financial 
Stability Board (FSB) and the Bank for International Settlements (BIS). 

Fourth, the assessment of the extent to which the central clearing obligation has reduced 
systemic  risk  raises  methodological  challenges.  These  come  on  top  of  the  data  issues 
mentioned  before.  The  nature  of  EMIR  data  requires  new  tools  and  innovation  in  the 
field of network analysis, statistical physics and certain mathematical concepts. How to 
assess systemic risk using transaction-based reporting data is an active and open field of 
research. 

Section 6 Implementation state of play (Results) 

Overview of requirements in place 

EMIR has been directly applicable since 16 August 2012. A regulation was deemed to be 
the  most  suitable  policy  instrument  to  ensure  the  application  of  uniform  requirements 
throughout  the  EU  with  exactly  the  same  scope,  without  any  gold-plating  and  without 
allowing  residual  powers  to  Member  States.  In  addition,  EMIR  empowered  the 
Commission to adopt delegated acts in accordance with Article 290 of the TFEU to spell 
out  the  details  of  some  requirements.  EMIR  also  required  ESMA  to  draft  regulatory 
technical standards for these delegated acts and carry out appropriate impact assessments.  

123 

 
 
 
 
 
 
While  EMIR  entered  into  force  in  August  2012,  not  all  of  the  requirements  it  sets  out 
already apply. The provisions of EMIR, together with the deadlines included within the 
different technical standards, imply a phased-in application of the legal framework.  

This section focuses on the application of those rules that are relevant to achieve EMIR's 
operational  objectives  to  i)  obtain  complete  and  comprehensive  information  on  OTC 
derivatives  positions,  ii)  increase  the  use  of  CCP  clearing,  and  iii)  improve  bilateral 
clearing  practices.  These  rules  include:  trade  reporting  of  OTC  derivatives;  central 
clearing; and minimum margin and risk-mitigation requirements for non-centrally cleared 
derivatives (NCCDs). The following key obligations have started to apply:  

i. 

ii. 

iii. 

the  reporting  of  all  derivatives  contracts  to  TRs  to  improve  oversight  of  the 
derivatives market and assessment of systemic risk has been in force since 2014; 
the mandatory clearing through CCPs of the most standardised OTC derivatives 
contracts to reduce systemic risk has started to apply since June 2016 to certain 
asset classes and to certain counterparties; and 
operational risk-management techniques have started to apply to uncleared OTC 
derivatives  since  2013,  through  a  gradual  schedule.  The  exchange  of  collateral 
(margins) for non-centrally cleared contracts to protect against counterparty credit 
risk has started phased-in from 4 February 2017 for the largest counterparties and 
in accordance with internationally agreed timelines for other counterparties.  

The  FSB  regularly  monitors  the  implementation  of  OTC  derivatives  reforms  agreed  by 
the G20 in its 24 member jurisdictions. The table below is an extract from the latest FSB 
progress report, published in August 2016. It highlights that, as of end-June 2016, the EU 
had  implemented  all  of  the  G20  commitments  on  OTC  derivatives  reforms,  except 
margin  requirements  for  non-centrally  cleared  derivatives  (NCCDs).  Since 
the 
publication  of  the  FSB  progress  report  however,  the  EU  adopted  in  October  2016 
regulatory standards on margin requirements for uncleared derivatives. This means that 
the  EU  has  completed  the  implementation  of  the  G20  OTC  derivatives  reforms  with 
regard to trade reporting, central clearing and margins requirements. 

Table  A-5/1  -  Summary  of  Jurisdictional  Progress  of  OTC  Derivatives  Market 
Reforms – EU focus (Reforms to jurisdictional frameworks, as at end-June 2016) 

Trade 
Reporting 

Central 
Clearing 

Capital 

Margin 

Platform 
Trading 

E
U 

France 
Germany 
Italy 
The 
Netherlands 
Spain 
United 
Kingdom 

FR 
DE 
IT 
NL 

ES 
UK 

2  
2 
2 
2 

2 
2 

2 

Capital  and  margins  for  NCCDs:  Legislative  framework  or  other  authority  is  in 
force and, with respect to at least some transactions, standards / requirements have 
been published for public consultation or proposal. 

124 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade  reporting:  Legislative  framework  or  other  authority  is  in  force  and,  with 
respect to over 90% of transactions, standards / requirements are in force. 
Central clearing and platform trading:  Legislative framework or other authority is 
in  force  and,  with  respect  to  over  90%  of  transactions,  standards  /  criteria  for 
determining  when  products  should  be  centrally  cleared  /  platform  traded  are  in 
force. An appropriate authority regularly assesses transactions against these criteria. 
Capital for NCCDs: Legislative framework or other authority is in force and, with 
respect to over 90% of transactions, standards / requirements are in force. 
Source: FSB OTC Derivatives Market Reforms - 11th progress report, August 2016 

What is the current situation? 

An  overview  of  the  structure  of  the  OTC  derivatives  market  and  of  the  type  of 
counterparties is available in Annex 2A.  

1.  Reporting obligation 

EMIR  requires  that  all  derivatives  contracts  be  reported  to  Trade  Repositories  (TR).  In 
practice, counterparties entering into a derivative contract must report certain variables to 
a TR authorised by ESMA. Currently, there are six authorised TRs in the EU.  

Table A-5/2 – List of trade repositories registered by ESMA, as of May 2015 

Source: European Securities and Markets Authorities 

These TRs provide daily data to over 60 institutions in the EU, which have access to the 
data pertaining to their respective jurisdiction186. EMIR grants ESMA and the ESRB with 
exclusive access to the full EU-wide asset. 

The reporting requirement applies to all derivatives classes (including credit, commodity, 
equity, interest rates, foreign exchange and "other") and encompasses  trades cleared by 
CCPs. Both OTC and exchange-traded contracts are covered. Furthermore, the reporting 
obligation  applies  to  all  counterparties.  The  reporting  obligation  aims  to  provide  a  full 
picture  of  the  EU  derivatives  market  to  address  the  lack  of  transparency  of  the  OTC 

186  ESRB, Occasional Paper Series No11/ September 2016, Shedding light on dark markets: First insights 

from the new EU-wide OTC derivatives dataset. 

125 

 
 
 
 
 
 
 
                                                 
derivatives market, in order to provide complete and comprehensive information on OTC 
derivatives positions. The reporting requirement became applicable in February 2014. 

Today, a substantial share of new OTC derivative transactions is estimated to be covered 
by  reporting  requirements.  In  the  EU,  where  authorised  TRs  are  available  in  all  asset 
classes,  requirements  are  estimated  to  cover  80–100%  of  new  transactions  in  all  asset 
classes, as illustrated in the table below.  

Table A-5/3 – Estimated regulatory coverage of reporting requirements (Percent of 
all new transactions that are required to be reported to comply with regulations, as 
at March 2016)187 

Source: FSB OTC Derivatives Market Reforms - 11th progress report, August 2016 

Table A-5/4 – Aggregate availability of trade repositories by asset class – EU focus 
(TRs and TR-like entities authorised as at end-June 2016)188 

Source: FSB OTC Derivatives Market Reforms - 11th progress report, August 2016 

2.  Clearing obligation 

The  operational  objective  of  the  clearing  obligation  is  to  increase  the  use  of  CCP 
clearing, in order to reduce systemic risk.  

The  scope  of  the  clearing  obligation  is  far-reaching  and  includes  all  financial 
counterparties189  and  the  biggest  non-financial  counterparties  (NFCs).  This  is  because 
EMIR intends to cover all relevant market participants in order to cover all risks linked to 
derivatives transactions. 

187  According  to  the  FSB  categorisation  of  asset  classes.  The  asset  classes  used  in  the  FSB  report  are  those 
established under IOSCO classification, and do not exactly match those applicable under EMIR. In particular, it 
should  be  noted  that  emission  allowance  derivatives  are  classified  under  the  “Other  derivatives”  asset  class  for 
EMIR, but under “Commodity derivatives” under IOSCO. 

188  Ibid. 
189  Article  2(8)  of  EMIR  provides  a  definition  of  financial  counterparty.  It  refers  to  an  investment  firm 
authorised in accordance with Directive 2004/39/EC, a credit institution authorised in accordance with 
Directive 2006/48/EC, an insurance undertaking authorised in accordance with Directive 73/239/EEC, 
an  assurance  undertaking  authorised  in  accordance  with  Directive  2002/83/EC,  a  reinsurance 
undertaking  authorised  in  accordance  with  Directive  2005/68/EC,  a  UCITS  and,  where  relevant,  its 
management  company,  authorised  in  accordance  with  Directive  2009/65/EC,  an  institution  for 
occupational retirement provision within the meaning of Article 6(a) of Directive 2003/41/EC and an 
alternative investment fund managed by AIFMs authorised or registered in accordance with Directive 
2011/61/EU. 

126 

 
 
 
 
 
 
 
 
 
 
                                                 
EMIR does however only aim at 'systemic' NFCs: it acknowledges that NFCs use OTC 
derivative  contracts  in  order  to  cover  themselves  against,  i.e.  hedge,  commercial  risks 
directly linked to their commercial or treasury financing activities. NFCs are subject to 
the  clearing  obligation  where  their  positions  in  non-hedging  OTC  derivatives  exceed 
certain thresholds defined in regulatory technical standards drafted by ESMA190. Once an 
NFC  surpasses  one  of  these  thresholds  in  any  asset  class,  it  becomes  subject  to  the 
clearing  obligation  across  all  asset  classes.  These  NFCs  are  commonly  referred  to  as 
'NFC+' as opposed to NFCs below the threshold which are known as 'NFC-'. 

Today,  the  EU  has  adopted  three  central  clearing  determinations,  on  the  basis  of  draft 
regulatory  technical  standards  drafted  by  ESMA,  following  analysis  carried  out 
according  to  criteria  set  out  in  EMIR.  The  determinations  cover  two  different  asset 
classes: OTC interest rate derivatives and OTC credit derivatives.  

Interest rates derivatives are by far the largest segment of outstanding derivatives. As at 
end-June 2016, the notional amounts of outstanding OTC interest rate derivatives rose to 
USD  438  trillion  (80%  of  global  outstanding  derivatives)191.  In  April  2016,  the  EU 
accounted for 47% of the global interest rates derivatives market192. By contrast, the size 
of the credit derivatives market has declined steadily, from $25 trillion at end-June 2013 
and a peak of $51 trillion in 2007, to $11.8 trillion at end-June 2016 (amounting to 2.2% 
of global outstanding derivatives)193. 

Today, the central clearing determination covering OTC interest rate swaps (IRS) related 
to  the  Euro,  the  USD,  the  Yen,  and  the  British  Pound  has  started  to  apply  to  clearing 
members  (as  of  21  June  2016)  and  to  financial  counterparties  above  the  EUR  8  billion 
threshold (as of 21 December 2016). For other IRS in European currencies (Norwegian 
Krone,  Polish  Zloty,  and  Swedish  Krona)  and  Credit  Default  Swaps  (CDS),  the 
application  has  started  phasing-in  as  of  February  2017  for  clearing  members.  The 
compliance  deadlines  for  the  central  clearing  determination  applying  to  various  asset 
classes and to different types of counterparties are summarised in the tables below. 

190  The  thresholds  are  EUR  1  bn  in  gross  notional  value  for  credit  and  equity  derivatives  and 

EUR 3 billion for interest rate, foreign exchange, and commodity or other derivatives. 
191  OTC derivatives statistics at end-June 2016, Statistical release, BIS, November 2016, p. 5. 
192  Triennial Central Bank Survey of Foreign Exchange and OTC derivatives markets in 2016, Statistical 

Annex, BIS, p. 18. 

193  OTC derivatives statistics at end-June 2016, Statistical release, BIS, November 2016. 

127 

 
 
 
 
 
 
 
 
                                                 
Table A-5/5 - First Commission Delegated Regulation covering interest rate 
derivatives in the G4 currencies 

Source: European Securities and Markets Authority 

Table A-5/6– Second Commission Delegated Regulation covering European index 
CDS

Source: European Securities and Markets Authority 

Table  A-5/7  -  Third  Commission  Delegated  Regulation  covering  interest  rate 
derivatives in NOK, PLN and SEK 

Source: European Securities and Markets Authority 

128 

 
 
 
 
In  spite  of  the  recent  phase-in  of  the  central  clearing  obligation  in  the  EU,  evidence 
shows  that  a  substantial  share  of  OTC  derivatives  is  now  centrally  cleared.  As  of  end-
June 2016, on average 62% of the $544 trillion in outstanding notional amounts reported 
by dealers was centrally cleared by CCPs across all types of derivative contracts194.  

In  terms  of  notional  amounts,  without  adjusting  for  double  counting  arising  from 
novation, BIS estimated that the volume of cleared OTC transactions at the end of June 
2016  totalled  USD  337.28  trillion,  of  which  USD  328.5  trillion  was  attributable  to 
interest rate derivatives and USD 4 trillion to credit OTC derivatives. 

In  the  EU,  there  are  currently  17  CCPs  that  have  been  authorised to  offer  services  and 
activities  in  the  Union195.  They  clear  a  significant  proportion  of  USD  544  trillion  of 
derivatives outstanding. 

Figure  A-5/8:  Significance  of  central  clearing  -  Types  of  counterparties,  as  a 
percentage of notional amounts outstanding at end-June 2016 

Source: BIS derivatives statistics, November 2016 

3.  Margin and operational  risk management requirements for uncleared OTC 

derivative contracts 

In spite of the significance of central clearing, a material proportion of OTC derivative 
transactions  remain  bilateral.  EMIR  introduced  requirements  on  operational  risk 
management and margins in order to improve risk management in bilateral clearing. 

194 BIS, Statistical release, OTC derivatives statistics at end-June 2016, November 2016. 
195 ESMA, in accordance with Article 88(1) of EMIR, publishes a list of the CCPs that are authorised to 

offer services and activities in the Union. 

129 

 
 
 
 
 
 
 
 
 
                                                 
Rules on risk-mitigation techniques for OTC derivative contracts not cleared by a CCP 
started  to  phase-in  in  2013.  All  NCCDs  are  subject  to  requirements  on  timely 
confirmation, portfolio reconciliation, portfolio compression, dispute resolution and daily 
valuation requirements (above a certain portfolio size threshold). The requirements are in 
line  with  international  standards  developed  by  the  International  Organization  of 
Securities Commissions (IOSCO), prepared in consultation with the Basel Committee on 
Banking  Supervision  (BCBS)  and 
the  Committee  on  Payments  and  Market 
Infrastructures  (CPMI)  and  finalised  in  January  2015196.  As  far  as  risk-mitigation 
techniques  are  concerned,  the  figure  below  shows  developments  in  the  use  of  portfolio 
compression  at  one  prominent  service  provider,  for  some  asset  classes  of  both  NCCDs 
and cleared OTC derivatives. 

Figure  A-5/9  –  Use  of  portfolio  compression  services  (triReduce  compression 
metrics, in USD trillions, from 2003 to 2016) 

Sources: TriOptima, FSB OTC Derivatives Market Reforms - 11th progress report 

In  addition  to  operational  risk  mitigation  techniques,  the  Commission  adopted  new 
regulatory  technical  standards  on  margins  requirements197  in  October  2016  to  further 
mitigate risk in bilateral clearing and strengthen the incentive to move to central clearing, 
based  on  criteria  set  out  in  EMIR.  These  requirements  follow  international  standards 
developed by the BCBS and IOSCO.  

The  scope  of  the  margin  requirements  reflects  the  one  of  the  clearing  obligation  and 
applies  to  all  financial  counterparties  and  'NFC+'.  The  margin  rules  require  them  to 
exchange two types of collateral in the form of margins. The first type is variation margin 
(VM), which protects counterparties against exposures related to the current market value 
of their OTC derivative contracts. The second type is initial margin (IM), which protects 
counterparties against potential losses which could stem from movements in the market 
value of the derivatives position occurring between the last exchange of variation margin 
before  the  default  of  a  counterparty  and  the  time  that  the  OTC  derivative  contracts  are 
replaced  or  the  corresponding  risk  is  hedged.  The  initial  margin  requirement  applies  to 
financial  counterparties  and  NFCs  above  a  threshold  of  EUR  8bn  in  gross  notional 
amounts of outstanding contracts. 

196 IOSCO (2015), Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives, January. 
197 Commission Delegated Regulation (EU) 2016/2251 of 4 October 2016, OJ L 340, 15.12.2016, p. 9–46. 

130 

 
 
 
                                                 
The entry into application of the requirements follows a phase-in schedule, starting on 4 
February 2017 for clearing members and as of 1 March 2017 for other counterparties.  

Section 7 Answers to the evaluation questions 

Question 1: How effective has the EU intervention been? 

-  To  what  extent  have  the  operational  objectives  of  EMIR  to  i)  obtain  complete  and 
comprehensive  information  on  OTC  derivatives  positions,  ii)  increase  the  use  of  CCP 
clearing,  and  iii)  improve  the  management  of  risk  in  bilateral  clearing  practices  have 
been achieved and what factors influenced the achievements observed? 

One  of  EMIR's  key  operational  objectives  was  to  ensure  complete  and  comprehensive 
information  on  OTC  derivative  positions,  by  introducing  a  requirement  to  report  all 
trades  to  TRs.  It  is  too  early  to  fully  assess  the  extent  to  which  EMIR  has  met  this 
operational  objective,  as  the  reporting  requirement  has  only  been  in  application  since 
February 2014.  

Nevertheless,  initial  results  indicate  that  progress  has  been  achieved  and  that  this 
objective has  been  partially  met. Indeed, the reporting requirement generates huge data 
volumes about the derivatives market. It is estimated that, by the end of 2015, 27 billion 
records  have  been  received  and  processed  by  the  six  TRs  in  the  EU,  averaging  around 
330  million  records  per  week198.  This  corresponds  to  FSB's  estimates  that  80–100%  of 
new transactions in all asset classes are covered by the EMIR reporting requirements199. 
According to the ESRB, 'derivatives markets are thus in the process of becoming one of 
the most transparent markets for regulators'200. 

However, there are teething issues with the reporting requirements.  In the EMIR public 
consultation,  numerous  respondents  (in  particular  companies  and  industry  associations) 
indicated  that  the  data  produced  by  trade  repositories  is  of  low  quality  and  not 
sufficiently transparent, and therefore difficult to use.  

In  particular,  market  participants  and  authorities  noted  that  many  reports  by  the  two 
counterparties pertaining to the same transaction are not accurately matched within TRs. 
This is attributed in part to a lack of clarity around what needs to be reported and how. It 
is also attributed to differences in requirements between TRs.   

There are also concerns about the quality of the reported data. The EMIR review report 
indicated that, as a result of the difficultly in submitting accurate data and matching, the 
data was not as reliable and usable as it should be. 

198  European Securities and Markets Authority. “ESMA’s supervision of credit rating agencies and trade 

repositories: 2015 annual report and 2016 work plan.” 

199  See figure A-5/3 above. 
200   Shedding light on dark markets: First insights from the new EU-wide OTC derivatives dataset, ESRB, 

Occasional Paper Series No11/ September 2016. 
https://www.esrb.europa.eu/pub/pdf/occasional/20160922_occasional_paper_11.en.pdf  

131 

 
 
 
 
 
 
 
 
 
 
 
                                                 
Those  concerns  can  be  grouped  into  two  main  categories,  as  outlined  by  the  ECB  in  a 
recent  article  on  the  OTC  derivative  reforms201.  First,  there  are  issues  related  to 
misreporting  by  the  counterparties  or  the  TRs.  There  are  indications  that  there  are 
positive developments on that front. For instance, the ESRB indicated in September 2016 
a downward trend in the share of missing observations on several key variables that need 
to be reported, as illustrated by the following figure. 

Figure A-5/10: Percentage of missing observations for selected variables202  

Source: European Systemic Risk Board, Occasional Paper Series No11/September 2016 

The second category includes problems that are caused by a lack of standardisation and 
harmonisation. ESMA, the ECB and the ESRB are involved in various work streams at 
international and EU level to improve the quality of data.  

In addition, ESMA suggested in its input to the Commission's consultation on the EMIR 
review  that  fines  for  TRs  may  need  to  be  increased  in  order  to  ensure  effective 
supervision and provide further incentives to increase data quality203. 

Another of EMIR's key operational objectives was to increase the use of CCP clearing, 
by  requiring  that  standardised  OTC  derivatives  be  cleared  through  CCPs,  according  to 
criteria established by EMIR. As intended, the market use of CCPs has increased since 
the adoption of the delegated regulation on central clearing for interest rate derivatives in 
August 2015204. According to BIS data, the clearing rate for OTC interest rate derivatives 
is estimated to have more than doubled between 2009 and 2016. While the percentage of 

201 

'Looking back at OTC derivative reforms – objectives, progress and gaps', ECB, 20 December 2016, 
pp. 21-22. 

202  This  chart  depicts  the  time  series  of  missing  observations,  computed  as  the  mean  percentage  of 
missing  variables  across  four  variables:  beneficiary  ID,  notional  amount,  effective  date,  and  price 
multiplier. 

203  EMIR Review Report no.4, ESMA input as part of the Commission consultation on the EMIR Review, 

https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-1254_-
_emir_review_report_no.4_on_other_issues.pdf 

204  Commission Delegated Regulation (EU) 2015/2205 of 6 August 2015, OJ L 314, 1.12.2015, p. 13–21. 

132 

 
 
 
 
                                                 
interest  rate  OTC  derivatives  centrally  cleared  was  about  36%  at  the  end  of  2009,  it 
reached about 60% at the end of 2015.  

Likewise, central clearing has gained in importance in the credit derivatives market. The 
proportion of outstanding CDS cleared through CCPs has increased steadily since these 
data were first reported, from 10% at end-June 2010 to 37% at end-June 2016205. 

Figure  A-5/11  –  Growth  of  central  clearing  (notional  amounts  outstanding  by 
counterparty in percent) 

Source: BIS derivatives statistics, November 2016 

This confirms that EMIR is on track to achieve the objective to increase the use of CCPs. 
However, according to FSB data, there is scope for further uptake of central clearing. The 
11th  progress  report  on  the  OTC  derivatives  markets  reforms206  indicates  that  the  gross 
notional  outstanding  amount  of  centrally  cleared  positions  across  all  sub-product  types 
represented in 2015 around 56% of all estimated notional outstanding amount that could 
theoretically be centrally cleared.  

There  are  also  obstacles  in  accessing  central  clearing  to  meet  upcoming  clearing 
obligations. The EMIR review report highlighted that smaller counterparties in particular 
are  struggling  to  access  clearing,  in  particular  due  to  legal  and  commercial  challenges 
posed by EMIR with respect to the level of client asset segregation that has to be offered 
by  clearing  members.  In  addition,  there  are  concerns  that  EMIR  does  not  explicitly 
override inconsistencies in Member States' national insolvency regimes207. Furthermore, 

205  OTC derivatives statistics at end-June 2016, Statistical release, BIS November 2016. 
206  FSB OTC Derivatives Market Reforms - 11th progress report, FSB, August 2016. 
207  EMIR Review report n°3 - Review on the segregation and portability requirements, ESMA/2015/1253, 
ESMA,  13 August 2015,  https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-2015-

133 

 
 
 
 
                                                 
 
as  set  out  in  the  EMIR  review  report,  many  respondents  to  the  EMIR  consultation, 
notably  industry  associations  and  banks,  consider  that  it  can  be  difficult  to  predict  the 
levels  of  margin  that  they  will  be  required  to  post  to  CCPs  for  centrally  cleared 
transactions. Reports from ESMA208 and ESRB209 suggested increasing the transparency 
of  margin  requirements  in  order  to  improve  the  treatment  of  procyclicality.  Finally,  a 
broad  range  of  public  authorities,  investment  managers,  and  industry  associations  also 
highlighted  the  absence  of  a  mechanism  under  EMIR  for  the  clearing  obligation  to  be 
suspended promptly where the market situation so requires (e.g. sharp change in volumes 
cleared or liquidity).  

Another of EMIR's  operational  objectives  was to  improve risk  management in  bilateral 
clearing  practices  and  to  strengthen  the  incentive  to  move  to  central  clearing,  by 
introducing  operational  risk  management  techniques  and  margins  requirements  for 
uncleared OTC derivative contracts. As margins requirements have just started to phase-
in in February 2017, their impact on the market structure and on risk-mitigation will only 
become clear in future data. 

Question 2: How efficient has the EU intervention been? 

-  To  what  extent  have  EMIR's  core  requirements  on  reporting,  clearing,  and  risk-
mitigation 
for  market 
participants given the effects they have achieved in promoting transparency in the OTC 
derivatives market and in mitigating systemic risk? 

for  uncleared  derivatives  been  cost-effective 

techniques 

Even if we cannot yet assess the impact on systemic risk for the entire system due to the 
methodological  and  data  challenges  mentioned  in  section  5,  input  from  ESMA,  ESRB, 
ESCB,  as  well  as  submissions  to  the  EMIR  consultation  and  the  Call  for  Evidence, 
highlighted that reporting, clearing, operational risk mitigation and margin requirements 
remained  integral  to  achieving  in  a  cost-effective  manner  EMIR's  objectives  of 
promoting transparency in derivatives markets and mitigating risks.  

The  EMIR  review  report  also  identified  a  number  of  areas  where  the  core  EMIR 
requirements could be adjusted to reduce disproportionate costs and burdens on market 
participants, without compromising its overall objectives.  

In  particular,  it  seems  that  the  scope  of  transactions  covered  by  the  reporting 
requirements of EMIR could be made more proportionate, in order to alleviate excessive 
burdens  on  counterparties,  without  putting  financial  stability  at  risk.  On  the  reporting 
requirement,  respondents,  including  both  market  participants  as  well  as  ESMA, 
questioned the utility to report transactions existing prior to the start of the application of 
the reporting obligation (so called 'backloading') as this data is very challenging to report 
and  is  considered  as  less  and  less  useful  since  it  concerns  historical  data  that  is  not  of 

1253_-_emir_review_report_no.3_on_segregation_and_portability.pdf. ESMA reports in paragraph 32 
of that report, that some CCPs found discrepancies between some Member States insolvency laws and 
EMIR  because  of  which  the  EMIR  default  management  tools  are  not  enforceable  under  the  current 
legal framework. 

208  ESMA's  EMIR  Review  Report  no.2  -  Review  on  the  efficiency  of  margining  requirements  to  limit 

procyclicality 

209  ESRB  Report  on  the  efficiency  of  margining  requirements  to  limit  pro-cyclicality  and  the  need  to 

define additional intervention capacity in this area 

134 

 
 
 
 
 
 
 
 
                                                                                                                                                 
critical  importance  for  regulators.  Similar  concerns  were  expressed  with  respect  to 
exchange traded derivatives.   

With  regard  to  the  clearing  obligation,  ESMA  and  respondents  raised  questions  on 
whether the burden related to the requirement to clear contracts entered into before the 
clearing  obligation  enters  into  force  (so  called  'frontloading')  is  proportionate  given the 
limited number of contracts that this will capture as it is a temporary measure by nature, 
balanced  against  the  difficulties  and  uncertainty  of  applying  clearing  obligations 
retrospectively. 

In  addition  to  the  transactions  covered  by  EMIR,  there  are  questions  on  whether  the 
scope  of  entities  covered  by  some  of  the  key  requirements  could  be  better  calibrated, 
taking  into  account  their  systemic importance vis-à-vis  the rest  of the economy. Figure 
A-5/12  provides  a  sense  of  the  relative  share  of  various  market  participants  in  cleared 
contracts, on the basis of an analysis carried out by the ESRB.  

Figure  A-5/12  –  Share  of  total  notional  of  centrally  cleared  contracts  by  type  of 
market participant (DTCC OTC interest rate derivatives dataset, based on the 02/11/15 
trade state report)210 

Source: European Systemic Risk Board, Occasional Paper Series No11/September 2016 

For  instance,  both  respondents  to  the  public  consultations  and  ESMA  noted  that  non-
financial  counterparties  (NFCs)  face  significant  challenges  in  meeting  requirements,  in 
particular reporting requirements, due to limited resources and experience. According to 
the  ESMA,  non-financial  counterparties  that  are  active  in  derivatives  markets  are 
numerous (64.295) and represent 72% of the number of counterparties. ESMA confirmed 
that only 2% of the notional value of the OTC derivatives markets is made up by NFC 

210  This chart includes only trades which are centrally cleared. The group of G16 dealers includes Bank of 
America, Barclays, BNP Paribas, Citigroup, Crédit Agricole, Credit Suisse, Deutsche Bank, Goldman 
Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Nomura, Royal Bank of Scotland, Société Générale, 
UBS, and Wells Fargo. 

135 

 
 
 
 
 
 
                                                 
activity and that NFCs tend to transact with less than 6 other market participants, which 
suggests a lack of interconnectedness across the system as far as NFCs are involved211.  

This  suggests  that  the  systemic  relevance  of  most  of  the  NFCs  is  limited  and  that 
EMIR's core requirements could be better calibrated so as not to impose an unnecessary 
or  disproportionate  burden  on  NFCs  which  do  not  pose  significant  risks  to  financial 
stability. For instance, initial industry estimates suggest that the annual costs of reporting 
could range between €2.4 and €4.6 billion212 for NFCs.  

Likewise, companies and industry associations questioned whether it is proportionate to 
apply  the  reporting  requirements  to  intragroup  transactions  to  NFCs,  given  that  these 
transactions  are  undertaken  within  the  same  corporate  groups  where  coordination 
between the counterparties is inherent in the nature of the transactions. 

Likewise,  small  financials  and industry  associations  and  some  public authorities  noted 
that when undertaking limited derivatives activity they were facing significant challenges 
in  establishing  the  access  to  clearing  necessary  to  meet  upcoming  clearing  obligations. 
Respondents  considered  this  was  principally  due  to  leverage  ratio  requirements 
anticipated by clearing members under the Capital Requirements Regulation, which are 
perceived as having the potential to make client clearing services too costly for them to 
offer. 

The network structure of the OTC derivatives market suggests that the trade-off between, 
on the one hand, the costs of complying with certain EMIR requirements such as those 
relating  to  clearing  and  reporting,  and,  on  the  other  hand,  increased  financial  stability, 
may be disproportionate for those market participants that are active at the periphery of 
the OTC derivatives market and thus present a relatively lower systemic risk for financial 
stability. 

The  ESRB  has  illustrated  in  a  recent  paper  published  in  September  2016  the  network 
structure  of  the  market  through  the  visualisation  of  the  outstanding  bilateral  IRS 
positions.  This  provides  a  sense  of  “who  trades  with  whom"  and  of  the  degree  of 
interconnectedness between market participants. 

Figure  A-5/13  below  illustrates  that  CCPs,  clearing  members  (referred  to  as  G16 
dealers),  and  banks,  which  appear  in  the  core  of  the  chart,  are  connected  to  a  large 
number  of  counterparties,  with  many  connections  between  them,  suggesting  a  high 
degree of systemic risk. By contrast, counterparties in the periphery, including NFCs and 
other  financials,  tend  to  be  connected  to  only  one  intermediary,  suggesting  limited 
systemic risk.  

In addition, the figure below points to several layers of intermediation between core and 
non-core market participants. Peripheral counterparties, which represent a lower share of 
trades,  tend  to  access  CCPs  only  indirectly,  via  an  intermediary.  This  highlights  that 

211 

'EMIR  Review  report  n°1  –  Review  of  the  use  of  OTC  derivatives  by  non-financial  counterparties, 
August 2015. 

212  According to industry study based on ISDA survey estimates and available information in July 2016. 
See:  http://www.eact.eu/wordpress/wp-content/uploads/2016/12/EACT-EMIR-review-Corporate-end-
user-comments-EC-non-papers-Dec16.pdf    

136 

 
 
 
 
 
 
                                                 
above-mentioned  obstacles  to  central  clearing  may  have  a  disproportionate  impact  on 
these non-core counterparties.  

Figure A-5/13 Network of gross notional links between counterparties in a subset of 
the interest rate swap (IRS) market 

Source: Jorge Abad, Jorge Abad, Iñaki Aldasoro, Christoph Aymanns, Marco D’Errico, 
Linda Fache Rousová, Peter Hoffmann, Sam Langfield, Martin Neychev, Tarik Roukny, 
Shedding  light  on  dark  markets:  First  insights  from  the  new  EU-wide  OTC  derivatives 
dataset, ESRB, Occasional Paper Series No 11, September 2016, p. 18. 

In addition, the Commission's report of February 2015213, together with contributions to 
the public consultations, also suggest that applying the clearing obligation to PSAs could 
generate  disproportionate  costs.  PSAs  are  currently  exempt  from  clearing  under  EMIR 

213  Commission Report assessing the progress and effort made by CCPs in developing technical solutions 
for  the  transfer  by  PSAs  of  non-cash  collateral  as  variation  margin,  as  well  as  the  need  for  any 
measures to facilitate such solution (COM(2015)39 final of 3.2.2015). 

137 

 
 
 
 
 
                                                 
through  a  Commission  Delegated  Regulation214,  as  they  face  structural  difficulties  in 
clearing their OTC derivative transactions through a CCP. This exemption will expire on 
16 August 2018 at the latest and the clearing obligation will apply to PSAs. There is a 
genuine risk that no viable technical solution will be available by then to allow PSAs to 
post non-cash collateral to meet their variation margin calls. According to a Commission 
report of February 2015, PSAs would then have to increase their cash holdings relative to 
their non-cash asset holdings. This would trigger a cumulated reduction in the retirement 
income of beneficiaries of PSAs, estimated by a baseline study ordered by the European 
Commission to be up to 3.66% across the EU over 40 years215. 

Question 3: How relevant is the EU intervention?  

-  To  what  extent  are  EMIR's  requirements  on  reporting,  clearing,  and  risk-mitigation 
techniques for uncleared derivatives still relevant nearly a decade after the 2009 G20's 
commitment  to  increase  the  stability  of  the  OTC  derivatives  market  and  in  light  of 
current developments in this market?  

EMIR  responded  to  the  commitment  by  G20  leaders  in  September  2009  that:  "All 
standardised  OTC  derivatives  contracts  should  be  traded  on  exchanges  or  electronic 
trading  platforms,  where  appropriate,  and  cleared  through  central  counterparties  by 
end-2012  at  latest.  OTC  derivatives contracts  should  be  reported  to  trade  repositories. 
Non-centrally cleared contracts should be subject to higher capital requirements". 

Since  the  G20  commitment,  the  size  of  the  OTC  derivatives  market  has  decreased. 
However, activity in the OTC derivatives market remains in the trillions. It has picked up 
in the first half of 2016, after several years of decline since end-2013. At the end of June 
2016,  the  size  of  the  OTC  derivatives  market  by  notional value  rose  to  $544  trillion,  a 
10% increase with respect to the end of 2015. 

Figure  A-5/14:  Global  OTC  derivatives  markets  at  end-June  2016  (notional 
principal) 

214  Commission Delegated Regulation C(2016)8542 of 20 December 2016. 
215  Baseline report on solutions for the posting of non-cash collateral to central counterparties by pension 

scheme arrangements, Europe Economics and Bourse Consult, p.10 - 25 July 2014. 

138 

 
 
 
 
 
 
 
 
                                                 
Source: BIS derivatives statistics, December 2016 

Therefore, in light of the high volumes of transactions across the OTC derivatives market 
and of the global nature of the market, an internationally coordinated approach is crucial. 
It is therefore important to continue the coordination of the reforms at FSB level to keep 
up  the  momentum  on  the  OTC  derivatives  reforms,  notably  to  avoid  the  risk  of 
regulatory arbitrage and to prevent cross-border issues. 

While  progress  has  been  made  by  regulators  with  adopting  the  relevant  frameworks 
transposing  the  G20  commitment,  not  all  relevant  requirements  are  in  application.  The 
FSB continue to monitor and report on OTC derivatives reform implementation progress. 
The figure below indicates progress since September 2015 and where further progress is 
currently anticipated by end-2017.  

Figure  A-5/15  –  Regulatory  reform  progress  (a)  (Status  across  all  FSB  member 
jurisdictions) 

Source: FSB OTC Derivatives Market Reforms - 11th progress report, August 2016 

In  this  context,  the  objectives  of  EMIR  to  reduce  systemic  risk  by  increasing  the 
transparency of the OTC derivatives market, by limiting the counterparty credit risk and 
by  reducing  the  operational  risk  associated  with  OTC  derivatives,  remain  valid.  As 
discussed above, the initial results of the core requirements of EMIR show that EMIR is 
achieving these objectives, but that those have only been partially achieved and that they 
could be achieved in a more effective and efficient manner. 

In addition, four years after the entry into force of EMIR, the EU has just completed the 
implementation  of  the  G20  requirements  with  the  adoption  of  margin  requirements  for 
uncleared derivatives in October 2016216. This means that the phase-in application of the 
core requirements of EMIR remains crucial to ensure that the general objectives of EMIR 
are achieved.  

216   Commission Delegated Regulation (EU) 2016/2251 of 4 October 2016, OJ L 340, 15.12.2016, p. 9–46. 

139 

 
 
 
 
 
 
 
                                                 
Question 4: How coherent is the EU intervention?  

-  To  what  extent  are  EMIR's  requirements  on  reporting,  clearing  and  risk-mitigation 
techniques  for  uncleared  derivatives  coherent  with  other  pieces  of  EU  financial 
the  Capital 
legislation,  such  as 
Requirements  Regulation,  the  Commission's  recent  proposal  to  on  the  recovery  and 
resolution of CCPs, and the second Markets in Financial Instruments Directive and the 
related Regulation?  

the  Commission's  recent  proposal 

to  amend 

EMIR is related to several pieces of EU legislation, including the Capital Requirements 
Regulation (CRR), the second Markets in Financial Instruments Directive and the related 
Regulation, and the Commission's proposal on the recovery and resolution of CCPs. 

In  their  responses  to  the  EMIR  consultation,  a  large  number  of  stakeholders  have 
mentioned  that  the  leverage  ratio  framework  under  Basel  III  and  CRR  may  have  an 
unintended negative effect on access to clearing for smaller counterparties under EMIR. 
This hurdle to the access to clearing has been addressed in the Commission's legislative 
proposal  to  amend  Regulation  (EU)  No  575/2013  as  regards  the  leverage  ratio,  the  net 
stable  funding  ratio,  requirements  for  own  funds  and  eligible  liabilities,  counterparty 
credit  risk,  market  risk,  exposures  to  central  counterparties,  exposures  to  collective 
investment  undertakings,  large  exposures,  reporting  and  disclosure  requirements  and 
amending  Regulation  (EU)  No  648/201.  Within  that  proposal,  the  Commission  aims  to 
exclude from the calculation of the leverage ratio the initial margins on centrally cleared 
derivative  transactions  received  by  institutions  in  cash  from  their  clients  and  that  they 
pass on to CCPs. It will, therefore, ease the access to clearing as the capital requirements 
to offer client or indirect clearing services will diminish.  

EMIR is also related to the Markets in Financial Instruments Directive I and II (MiFID I 
and  II)  and  the  related  Regulation  (MiFIR),  which  provide a  basis  for  the  definition  of 
derivatives  and  of  financial  counterparties.  In  this  regard,  the  upcoming  application  in 
January 2018 of MiFID II and MiFIR will have an impact on the scope of counterparties 
considered  as  financial  counterparties  and  on  the  harmonisation  of  the  definition  of 
foreign  exchange  (FX)  contracts  that  will  fall  under  EMIR.  The  MiFID  II  framework 
aims at reclassifying large non-financial commodities traders as financial counterparties, 
putting an 'ancillary activity test' that determines how much non-hedging (or speculative) 
commodity derivative trading  non-financial  firms can  conduct before  this activity is no 
longer deemed 'ancillary to the main business' of the firm and the firm be obliged to seek 
a  MiFID  authorisation.  Hence  the  largest  NFCs  active  on  commodity  markets  will  be 
obliged to seek a MiFID authorisation. This development will lead to the largest NFCs 
being subject to the clearing obligation under EMIR, potentially limiting the usefulness 
of  the  EMIR  clearing  thresholds  as  a  residual  tool  for  picking  up  'systemic'  NFCs. 
Concerning the harmonisation of the definition of FX derivatives contracts, it will allow 
a  uniform  and  consistent  application  of  the  EMIR  rules  to  these  contracts  within  the 
Union.  

Another  related  regulatory  development  concerns  the  systemic  risks  attached  to  CCPs 
themselves.  The  obligation  to  clear  standardised  OTC  derivatives  is  set  to  increase  the 
scale and importance of CCPs in Europe and beyond. CCPs manage the risks inherent in 
financial  markets  (e.g.  counterparty  risk,  liquidity  risk  and  market  risk),  and  therefore 
improve  the  overall  stability  and  resilience  of  financial  markets.  In  the  process,  they 

140 

 
 
 
 
 
 
 
 
become  critical  nodes  in  the  financial  system,  linking  multiple  financial  actors  and 
concentrating  significant  amounts  of  their  exposure  to  diverse  risks.  Effective  risk 
management of the CCP and robust supervisory oversight is therefore key to ensure that 
such  exposures  are  adequately  covered.  EMIR  does  regulate  CCPs  in  terms  of  making 
sure that CCPs are sufficiently resilient, but does not regulate the recovery and resolution 
scenarios. In order to do so, the Commission proposed in November 2016 a proposal for 
a framework for the recovery and resolution of central counterparties.  

More broadly, the core requirements of EMIR are consistent with the broader objectives 
of the Capital Markets Union. Efficient and resilient post-trading systems and collateral 
markets are essential elements for a well-functioning CMU. 

Question 5: What is the EU added value of the intervention?  

-  To  what  extent  EMIR's  requirements  on  reporting,  clearing  and  risk-mitigation 
techniques  for  uncleared  derivatives  have  helped  increase  the  stability  of  the  OTC 
derivatives  market,  taking  into  account  its  inherent  cross-border  nature,  and  to  what 
extent do the risks related to the lack of transparency in the OTC derivatives market and 
to  counterparty  credit  risks  in  cleared  and  uncleared  derivatives  markets  continue  to 
require action at EU level?  

In  terms  of  the  EU  added-value,  EMIR  covered  a  gap  that  existed  in  legislation  by 
introducing a new framework to increase stability in the OTC derivatives market at EU 
level.  EMIR  introduced  for  the  first  time  a  uniform  approach  throughout  the  EU  to 
increase  the  transparency  of  the  OTC  derivatives  market,  to  reduce  counterparty  credit 
risk, and to reduce the operational risk associated with OTC derivatives. 

As presented above, the OTC derivatives market is, by its very nature, a cross-border and 
interconnected market, which is  inherently complex. Action at EU level has  enabled to 
capture  a  large  portion  of  the  OTC  derivatives  market  and  helped  coordinate  action  at 
global level, making the EMIR requirements more effective. A consistent EU approach 
has  also  contributed  to  increase  stability  in  the  OTC  derivatives  market.  Given  the 
systemic  impact  of  some  of  the  problems  EMIR  aimed  to  tackle,  uncoordinated  action 
may have proven counterproductive. 

The regulation of the reporting requirement at EU level and the empowerment of ESMA 
with  both  the  registration  and  the  supervision  of  TRs  have  helped  ensure  that  all 
competent  authorities  have  the  same  degree  of  access  under the  same  conditions  to  the 
information  reported  to  a  TR,  as  this  information  is  of  interest  to  all  competent 
authorities.  The  EU-wide  data  set  will  in  turn  help  increase  the  understanding  of  the 
functioning of the derivatives market, facilitate the identification of possible sources  of 
systemic risk, and inform the development of macro-prudential policies.  

EMIR  has  also  established  a  uniform  process  at  EU-level  to  determine  which  OTC 
derivatives are eligible for mandatory clearing through CCPs. Action at EU level avoided 
a  fragmented  application  of  the  clearing  obligation  throughout  the  EU,  by  giving  a 
central  role  given  to  the  European  Commission  and  ESMA  in  identifying  the  eligible 
class of derivatives that must be centrally cleared.   

141 

 
 
 
 
 
 
 
 
 
 
 
Section 8 Conclusions 

The objectives of EMIR to increase transparency in the OTC derivatives market and to 
mitigate counterparty credit risk remain relevant, and the systemic risks associated with 
the OTC derivatives market persist. Whereas not all of the key EMIR requirements have 
entered  into  application,  the  analysis  shows  that,  based  on  the  evidence  available,  the 
initial  results  of  EMIR  are  delivering  on  the  general  objective  to  promote  transparency 
and standardisation in derivatives markets. The impact on the reduction of systemic risk 
has not become fully measurable, including due to methodological challenges that need 
to be addressed.  

On  the  effectiveness  and  efficiency  of  the  core  requirements  of  EMIR,  the  evaluation 
indicates that, while i) the volume of reported trades has improved, ii) the use of central 
clearing  has  increased  and  iii)  the  introduction  of  risk-mitigation  techniques  and 
margining for uncleared trades has been completed, preliminary findings suggest that (i) 
the  reporting  requirement  applying  to  transactions  may  be  simplified  to  increase 
transparency in the  OTC derivatives market. The evaluation also  highlights that  (ii) 
obstacles  to  access  central  clearing,  affecting  in  particular  smaller  counterparties, 
may limit the effectiveness of the clearing obligation. Initial results also indicate that 
(iii) EMIR may impose in certain areas  disproportionate costs/burdens for certain 
counterparties  that  sit  on  the  periphery  of  the  derivatives  trading  network  (e.g. 
small  financials  and  NFCs).  The  asymmetric  distribution  of  the  derivatives  market 
amongst counterparties, with smaller counterparties accounting for a limited share of the 
OTC derivative transactions, suggests that such adjustments, while making EMIR more 
proportionate, would not affect financial stability. 

In  terms  of  coherence,  EMIR  is  aligned  with  international  efforts  to  reform  the  global 
OTC derivatives market. At an internal level, EMIR is coherent with other pieces of EU 
legislation,  as  outlined  in  the  follow-up  to  the  Call  for  Evidence,  in  the  Commission's 
proposed  amendment  to  the  Capital  Requirement  regulation,  and  in  the  proposal  for  a 
recovery  and  resolution  framework  for  CCPs.  In  terms  of  the  EU  added  value,  EMIR 
covered  a  gap  that  existed  in  legislation  by  introducing  a  new  framework  aiming  to 
address in a uniform process at EU level the lack of transparency of the OTC derivatives 
market and the related systemic risks.  

142 

 
 
 
 
 
  
  
 
ANNEX  6:  OTHER  CHANGES  TO  THE  EXISTING  FRAMEWORK  THAT  ARE  OUTSIDE  OF 
THE ASSESSMENT SCOPE 

1. Frontloading 

I. Description 

Article  4(1)(b)(ii)  of  EMIR  requires  the  clearing  of  certain  OTC  derivative  contracts 
concluded before the clearing obligation takes effect (between the first authorisation of a 
CCP  under  EMIR  and  the  later  date  on  which  the  clearing  obligation  actually  takes 
effect),  unless  they  have  a  remaining  maturity  lower  than  the  minimum  remaining 
maturities  which  are  to  be  laid  down  in  the  relevant  delegated  act217  (so  called 
'frontloading' requirement). 

According  to  Recital  (20)  of  EMIR,  the  frontloading  requirement  aims  to  ensure  a 
uniform  and  coherent  application  of  EMIR  and  a  level  playing  field  for  market 
participants.  The  effective  application  of  this  requirement  is  however  proving 
burdensome and has raised a degree of uncertainty amongst market participants. 

II. Analysis 

As  pointed  out  by  ESMA  in  a  letter  to  the  Commission,  the  application  of  the 
frontloading  requirement  does  not  ensure  in  all  cases  the  achievement  of  the  goals 
pursued by it. On the contrary, the application of the frontloading requirement to certain 
OTC derivatives may have substantial negative effects on the functioning of the market, 
financial  stability  and  systemic  risk.  Indeed,  the  frontloading  requirement  causes 
uncertainties, inconsistencies, pricing issues, monitoring and operational issues. 

This  is  why,  in  a  letter  to  ESMA,  the  Commission  considered  that  the  frontloading  of 
OTC derivatives should be avoided in cases where it would not ensure the achievement 
of those objectives and that the determination of remaining maturities should not result, 
in  particular,  in  the  application  of  the  frontloading  requirement  to  OTC  derivatives 
concluded before counterparties could reasonably foresee that those contracts would need 
to  be cleared as a  consequence of the  frontloading  requirement. Such application could 
jeopardize  the  principle  of  legal  certainty.  In  this  respect,  the  Commission  considered 
that before ESMA submits the RTS to the Commission, counterparties cannot reasonably 
foresee the terms of the frontloading obligation. In light of the above, ESMA adjusted the 
application of the frontloading requirements by imposing it only after the entry into force 
of  the  corresponding  clearing  obligations  and  after  a  certain  period  of  time  allowing 
counterparties to reorganise their derivatives portfolios.  

With  this  limitation,  a  significant  number  of  transactions  now  fall  outside  the  scope  of 
this requirement. When the clearing obligations will be fully in application, frontloading 
will have a very limited application. 

III. Impact 

217   Commission Delegated Regulation (EU) 2015/2205 of 6 August 2015 supplementing Regulation (EU) 
No  648/2012  of  the  European  Parliament  and  of  the  Council  with  regard  to  regulatory  technical 
standards on the clearing obligation, OJ L 314, 1.12.2015, p. 13. 

143 

 
 
                                                 
Stakeholders  have  complained  about  the  legal  uncertainties  that  the  frontloading 
requirement  is  causing  that  can  have  an  impact  on  additional  risks  and  costs  for 
counterparties. The benefits of frontloading are thus undermined by issues faced by the 
counterparties (timing, potentially need to backload trades, need to determine if the said 
counterparties  are  in  the  scope  of  the  requirement,  etc.).  Even  limited  in  scope  and 
legal  uncertainty  and  operational 
timing, 
complications for limited benefits.  

the  frontloading  requirement  creates 

Member  States  and  EU  regulators  have  also  expressed  negative  views  about  this 
requirement. In addition, the international standards do not require frontloading.  

Therefore, the removal of this obligation will not have any negative impact on financial 
stability. 

2. Mechanism to suspend the clearing obligation 

I. Description 

Under  EMIR,  clearing  obligations  take  effect  in  accordance  with  the  delegated 
regulations  adopted  for  that  purpose.  Therefore,  the  only  way  of  removing  a  clearing 
obligation, either permanently or temporarily, is by repealing the relevant regulation – a 
process  involving  the  co-legislators  and  therefore  inevitably  time-consuming.  This  is 
detrimental  to  EMIR's  objectives  because  there  may  be  scenarios  where  the  temporary 
suspension of a clearing obligation is desirable on financial stability grounds. There are 
two broad potential causes for this: 

1.  The class of derivatives is largely cleared by a CCP that is in distress. The CCP 
may  be  subject  to  recovery  or  resolution  measures  (as  envisaged  in  the 
Commission's  proposal  for  CCP  recovery  and  resolution),  in  which  case  there 
may be a risk in financial institutions having exposures to it. 

2.  The  class  of  derivatives  may  have  since  become  unsuitable  for  central  clearing. 
This is most obviously the case where there has been a material change to one of 
the  criteria  on  the  basis  of  which  the  obligation  took  effect  (degree  of 
standardisation,  volume  and  liquidity,  and  the  availability  of  fair  and  reliable 
pricing). 

The  solution  that  several  public  authorities,  investment  managers,  and  industry 
associations requested was to introduce a mechanism whereby a clearing obligation could 
be temporarily suspended where one of the scenarios described above is fulfilled. 

II. Analysis  

A  broad  range  of  public  authorities,  investment  managers,  and  industry  associations 
advocated this mechanism, for which there are three strong arguments. 

First,  if  an  asset  class  no  longer  has  the  characteristics  that  justified  its  clearing,  then 
there  is  a  prima  facie  case  for  the  obligation  to  be  lifted.  Central  clearing  is  often 
unsuitable for illiquid asset classes as these contracts cannot be easily risk managed by 
CCPs, and if there is a sharp decrease in liquidity then the time taken to fully repeal the 
decision would be too long. 

Second, if clearing for a specific asset class is largely reliant on a distressed CCP then the 
maintenance of a clearing obligation would require participants to use a distressed CCP. 

144 

 
 
This exposes the user to enhanced counterparty credit risk, and opens them to the risk of 
their  positions  and/or  assets  being  expropriated  through  the  CCP's  loss  allocation 
mechanisms.  Allowing  a  derivatives  end  user  to  hedge  its  positions  using  uncleared 
derivatives, where it would pay more initial margin but would have a more predictable 
exposure, may be more prudent. 

Third, if a CCP is in distress then public authorities may want it to unwind its positions to 
reduce  the  probability  of  entering  resolution.  In  this  case,  if  the  clearing  obligation 
remained in situ, then this CCP would be accepting new contracts. 

The most persuasive case against a suspension mechanism in this scenario is that it could 
exacerbate a CCP's distress as it would no longer receive effectively guaranteed custom 
and  will  therefore  lose  revenue.  However,  a  decision  to  suspend  a  clearing  obligation 
should  always  be  designed  to  be  temporary  and  to  remain  in  the  hands  of  public 
authorities at Union level, which are equipped to decide whether the risks of greater CCP 
distress outweigh the benefits of suspending clearing in a given scenario. 

III. Impact 

The  mechanism  for  the  suspension  of  the  clearing  will  enable  to  accelerate  the  current 
procedure  for  such  an  action,  which  requires  today  the  amendment  of  the  relevant 
Regulatory Technical Standard establishing the clearing obligation, a process that would 
take around 12 months. Therefore, it is necessary to provide for a mechanism that would 
be flexible enough to allow for a decision to temporarily suspend the clearing obligation 
in due time. This decision should be taken at European level. 

3. Initial margin model approval 

I. Description 

EMIR contains risk mitigation requirements for uncleared derivatives contracts. One of 
these  requirements  is  for  the  bilateral  exchange  of  initial  margin  (collateral).  In 
calculating initial margin, counterparties have the choice of using an initial margin model 
or using the standardised approach which is set out in the RTS on margin requirements 
for uncleared derivatives (and is based on international standards). There is however no 
legal  requirement  for  competent  authorities  to  approve  the  initial  margin  model  before 
counterparties use it to calculate margins.  

The fact that a prior approval for initial margin models does not exist, though, does not 
mean  that  market  participants  in  the  EU  may  use  the  model  they  want.  They  have  to 
comply at all times with EMIR and the relevant delegated acts and with the requirements 
included therein. 

The  only  fully  developed  model  so  far  is  the  'SIMM'  model  developed  by  ISDA.  The 
ISDA SIMM has been analysed by a Joint Assessment Team (JAT) set up by the Joint 
Committee of the ESAs and comprised of experts from national European regulators as 
well as the ESAs. Although the final JAT report on ISDA SIMM is not public, it includes 
a complete assessment of the core of the ISDA model. But there is no legal certainty for 
EU counterparties that use of this model will be accepted by their supervisors. 

II. Analysis 

145 

 
 
There are some arguments that plead in favour of introducing a specific requirement to 
approve  the  model  before  it  can  be  used  by  counterparties.  Without  it,  there  might  be 
legal uncertainty for market participants in whether a model is suitable. In addition, the 
relevant international standard on margins requires such a prior approval. 

III. Impact 

The introduction of an explicit a priori approval procedure will allow for additional legal 
certainty for counterparties and give EU regulators the opportunity to discuss the relevant 
criteria for such a procedure. Therefore, the impact on financial stability will be positive.   

4. Increasing transparency of margin requirements 

I. Description 

EMIR  contains  only  limited  requirements  on  CCPs  to  disclose  details  of  their  initial 
margin  methodologies  to  their  clearing  members.  Article  38  of  EMIR  contains 
requirements for CCPs to disclose inter alia the prices, fees and risks associated with the 
services  they  provide.  Similarly,  Article  39  requires  the  CCP  to  disclose  the  cost  and 
level of protection associated with each model of segregation it offers. But since EMIR 
was  published,  CPMI-IOSCO  has  developed  more  granular  standards  on  margin 
transparency.  

Principle  23,  Key  Consideration  5  of  the  PFMIs  sets  out  the  minimum  disclosure 
standards expected of CCPs. This Principle states that an FMI should provide sufficient 
information to "enable participants to have an accurate understanding of the risks, fees, 
and  other  material  costs  they  incur  by  participating  in  the  FMI".  This  has  been 
augmented  in  2012  with  the  publication  of  the  Disclosure  framework  and  in  February 
2015  with  the  publication  of  Public  quantitative  disclosure  standards  for  central 
counterparties. These disclosures are intended to allow participants, authorities and other 
stakeholders  to  assess  a  CCP's  risk  controls  including  their  resources  to  withstand 
potential losses.  

When  the  EU  was  assessed  as  part  of  the  CPMI-IOSCO  level  2  monitoring  report,  the 
EMIR  framework  was  assessed  as  partly  compliant  with  Principle  23.  The  monitoring 
report  identified  the  EU's  gap  as  the  absence  of  a  requirement  that  a  CCP  completes 
regularly and discloses publicly its response to the Disclosure Framework.  

Similarly,  several  respondents  (particularly  banks  but  also  public  authorities)  to  the 
EMIR  review  public  consultation  stated  that  EMIR  could  be  improved  by  requiring 
greater  transparency  of  CCPs'  margin  requirements  to  their  members  (i.e.  distinct  from 
the  issue  of  public  disclosure).  In  particular,  there  is  concern  that  anti-procyclicality 
measures that CCPs have in place, and that are required under EMIR, may cause margin 
requirements to change unpredictably in response to market developments.   

There  are  some  provisions  in  EMIR  and  the  delegated/implementing  acts  that  address 
this  point.  CCPs  must  disclose  price  information  used  to  calculate  their  end  of  day 
exposures  and  must  make  public  information  regarding  their  risk  management  and 
margin models. However, they do not provide information that allows their members to 
calculate hypothetical margin requirements for simulated positions and parameters. 

II. Analysis  

146 

 
 
In practice, EU CCPs currently voluntarily disclose the data specified by CPMI-IOSCO. 
This data is useful to clearing members, as it allows them to more accurately capture the 
risks they face by participating in the CCP. It's also useful to public authorities in order to 
compare  relative  riskiness  and  risk  management  practices  of  all  EU  CCPs  to  identify 
anomalies and outliers.  

III. Impact 

The  cost  of  making  this  disclosure  mandatory  is  expected  to  be  minimal,  as  CCPs  are 
tending to comply with the disclosure framework anyway. This change would however 
give  CCP  supervisors  a  legal  hook  to  make  CCPs  disclose  this  information  in  cases 
where they would otherwise refuse. As all EU CCPs comply with this requirement, the 
single  market  would  be  strengthened  as  full  comparability  of  EU  CCPs  would  be 
guaranteed. In addition, this change would mean that the EMIR framework would fully 
comply with Principle 23 of the PFMIs. Conversely, it could be argued that as voluntary 
compliance is currently effective, there is no need for a legal mandate. Putting disclosure 
on a legislative footing also has the downside of having to make a legislative change in 
future if the disclosure framework is amended. 

The  issue  of  clearing  members  accessing  margin  requirements  is  more  complex.  Any 
dissemination  of  information  to  a  CCP's  clearing  membership  cannot  impede  the 
commercial  viability  of  the  CCP  or  incentivise  clearing  members  to  risky  behaviour. 
However,  clearing  members  have  a  responsibility  to  understand  the  risks  they  face  by 
participating  in  CCPs  and  the  corollary  is  that  CCPs  must  provide  the information  that 
allows clearing members to do this. As ESMA said in its EMIR review report on margins 
and procyclicality: "In order for margin requirements to be predictable, the participants 
need  to  understand  the  methodologies  used  to  calculate  margin  requirements  and 
parameters, have access to all relevant data required to partially predict such changes and 
also be able to replicate these calculations." 

If  CCPs  were  obliged  to  provide  their  clearing  members  with  margin  requirement 
simulation  abilities,  based  on  potential  price  and  parameter  changes,  then  clearing 
members could ensure that they had sufficient liquid resources to meet a future margin 
call.  This  would  reduce  the  probability  of  the  clearing  member  being  unable  to  meet  a 
margin call as market volatility increases, and so would have an anti-procyclical effect. 
In  addition,  if  CCPs  gave  their  clearing  members  information  on  the  procyclicality  of 
their margin models then their clearing members would again be better able to manage 
their exposures to the CCP. 

In addition, the impact on financial stability will be positive as clearing members will be 
able to better forecast the requests for additional margins by CCPs. 

147 

 
 
 
ANNEX 7: WHO IS AFFECTED BY THE INITIATIVE AND HOW? 

Pension Scheme Arrangements, and indirectly policy holders, will benefit from a new 
transitional clearing exemption on the grounds that no viable technical clearing solution 
has  emerged  to  date.  It  would  give  CCPs  and  PSAs  more  time  to  explore  technical 
solutions  and  measures  to  facilitate  them  and  be  consistent  with  EMIR's  objective  that 
the ultimate aim for PSAs is central clearing as soon as this is feasible. 

All  counterparties  will  benefit  from  the  lightening  of  reporting  requirements,  to  the 
extent  they  would  otherwise  have  to  report  the  type  of  transactions  concerned  by  the 
envisaged  policy  action:  The  removal  of  the  backloading  obligation  will  benefit  all 
counterparties that would otherwise have to backload historic trade data and reduce their 
administrative  burden.  The  exemption  of  intragroup  transactions  involving  NFCs  from 
the  reporting  obligation  will  benefit  NFCs.  Transferring  the  obligation  to  report 
exchange-traded  transactions  from  counterparties  to  CCPs  will  reduce  administrative 
costs borne by those counterparties. 

On the other hand, CCPs could be subject to higher administrative costs if the obligation 
to  report  exchange-traded  derivative  transactions  is  transferred  from  counterparties  to 
them. As CCPs already have a significant amount of data concerning these transactions 
in  their  possession  and  are  already  required  to  report  all  centrally-cleared  derivative 
transactions  under  EMIR,  the  additional  burden  placed  on  CCPs  would  however  be 
limited. Due to the economies of scale involved the overall administrative costs should 
be  considerably  lower  if  CCPs  report  the  data  of  all  transactions  concerned  centrally 
instead of many counterparties reporting a small number of transactions each. 

Non-Financial  Counterparties  would  benefit  from  greater  proportionality  in  the 
application  of  rules.  On  the  one  hand,  the  envisaged  measures  would  ensure  a  better 
level-playing  field  in  the  qualification  of  NFCs  subject  to  clearing  and  margining 
requirements. On the other hand the introduction of an additional higher threshold would 
only  place  the  largest  NFCs  in  scope  of  clearing  requirements.  Smaller  NFCs+  would 
not be subject to the clearing obligation, but the bilateral margin requirement would still 
apply.  With  regard  to  reporting,  in  addition  to  the  general  lightening  of  requirements 
referred to above, small non-financial counterparties will also benefit from the reporting 
obligation of their trades falling on financial counterparties, which are better equipped to 
fulfil this obligation.  

The impact on small financial counterparties would depend on their actual size. A re-
calibration of what constitutes a small financial counterparty that would be subject to the 
clearing  obligation  will  allow  lightening  the  burden  of  those  (very)  small  financial 
counterparties  for  which  central  clearing  is  not  economically  feasible  because  of  their 
small  volume  of  activity  while  keeping  the  bigger  firms  inside  the  clearing  obligation 
after the phase-in period ends. 

Trade  Repositories  would  benefit  from  measures 
to  simplify  and  streamline 
requirements  for  reporting  counterparties  and  to  further  harmonise  reporting  rules  and 
procedures  since  the  quality  of  the  data  reported  to  them  should  improve,  facilitating 
their work. On the other hand, increased requirements on trade repositories to ensure the 
quality  of  data  could  be  considered  an  additional  burden  on  them.  However,  trade 
repositories  will  have  to  implement  adequate  procedures  in  any  case  to  meet 
requirements pursuant to the Securities Financing Transactions Regulation, so the policy 
action  under  EMIR  considered  in  this  impact  assessment  would  not  create  a 

148 

 
 
(considerable) additional burden. The adjustment of fines considered would mostly act as 
a deterrent and only affect trade repositories that infringe the relevant EMIR provisions. 

Counterparties trading OTC derivatives subject to the clearing obligation that encounter 
difficulties in having access to clearing will benefit from the envisaged policy actions to 
improve  access  to  clearing  that  tackle  the  legal  (related  to  insolvency  rules)  and 
commercial obstacles to the provision of clearing services.  

149 

 
 
 
 
ANNEX 8: APPROACH TO ESTIMATE COST REDUCTIONS  

This  Annex  presents  the  approach  and  the  calculations  that  support  Table  9  on  cost 
reductions presented in section 6 of the impact assessment. 

It sets out under which assumptions the cost reductions apply in order to better put them 
in  perspective  and  highlight  the  limitations  inherent  to  their  calculations.  It  focuses  on 
cost reductions for NFCs and SFCs that the application of the preferred options relating 
to the scope of the clearing obligation and access to clearing would avoid them incurring. 
Details on the methodology followed to estimate the costs avoided for PSAs and NFCs 
with regard to the reporting obligation are presented directly in section 6.   

8.1. Caveats  

The  figures  provided  below  were  estimated  solely  for  the  purpose  of  this  impact 
assessment,  in  order  to  quantify  the  cost  reductions  that  the  package  of  preferred 
measures  would  represent,  under  the  REFIT  framework,  and  in  accordance  with  the 
Better  Regulation  Guidelines.  As  such,  they  focus  on  the  reduction  of  costs  and 
administrative  burdens, in  order to provide  a  sense  of the magnitude of cost reductions 
that could be achieved with the preferred options. The figures are based on data that is 
publicly available, and on the expected impact of the preferred options.  

As the application of EMIR follows a phased-in schedule, the estimated cost reductions 
presented  in  this  impact  assessment  are  valid  only  at  the  current  point  in  time. 
Requirements that will apply at a later stage, such as the phased-in application of margin 
requirements, have not been taken into account in the calculations. 

With regard to the timeline considered, while some of the preferred options are expected 
to have an immediate impact (e.g. those relating to the removal of a limited number of 
NFCs and SFCs from the scope of the clearing obligation), others (e.g. those facilitating 
access  to  clearing  for  small  counterparties)  will  deliver  their  benefits  only  over  a  mid-
term  period.  Likewise,  while  the  clearing  obligation  has  become  applicable  for  some 
counterparties (e.g. Category 1 and Category 2 counterparties as introduced in section 2), 
it has not yet become applicable for other counterparties (e.g. Category 3 counterparties 
as  described  in  section  2).  The  cost  estimates  include  therefore  both  costs  that  will  be 
avoided and costs that will be effectively reduced.  

The  estimates  below  represent  fixed  costs  attached  to  clearing.  Providing  estimates  for 
the operational costs of clearing would be unrepresentative, as there is no average price 
for  the  cost  of  clearing  a  transaction.  The  price  depends  on  the  package  of  clearing 
services that NFCs and SFCs have entered into, which itself depends on the asset class 
considered  and  on  the  commercial  relationship  between  the  clearing  member  and  the 
each NFCs and SFCs considered. 

The estimates below rely on the limited amount of data that is publicly available and on 
anecdotal  market  intelligence,  which  may  not  accurately  capture  the  diversity  and  the 
specificity of the counterparties at play. 

150 

 
 
Finally, the calculations are based on the assumption that the cost reductions generated 
by the preferred options will be entirely passed on to end-users, namely the NFCs and the 
SFCs. 

8.2. Calculations  

8.2.1. On cost reductions related to the narrower scope of clearing 

8.2.1.1. Non-Financial Counterparties subject to the clearing obligation (NFC+) 

8.2.1.1.1. Estimated cost reduction 

First, the objective is to identify the population of NFC+ that will no longer be subject to 
the obligation to clear in all the asset classes in which they are active once they exceed 
the threshold in one asset class, according to the preferred option presented in Table 9 of 
Section 6 (Option 2). 

According to ESMA review report n°1 on the review of the use of OTC derivatives by 
non-financial counterparties, 22% of NFCs+ are active in more than one asset classes218. 
More precisely, 20% are active in 2 asset classes and 2% are active in 3 asset classes. 

As  indicated  in  Table  4  on  the  classification  of  NFC+,  424  counterparties  qualify  as 
NFC+219. We can deduce from this that:  

i)  424*0.20 = 85 NFC+ counterparties are active in 2 asset classes; and  
ii) 424*0.02 = 8 NFC+ counterparties are active in 3 asset classes. 

For the benefit of the analysis, we assume that these NFC+ will not exceed the thresholds 
in more than one asset class. 

Second,  the  objective  is  to  estimate  the  cost  reductions  that  each  of  these  NFC+  will 
benefit from due to the removal of the obligation to centrally clear derivatives in those 
asset classes where they do not exceed the threshold.   

As NFC+ sit in the periphery of the OTC derivatives market (see explanations in section 
3  of  the  impact  assessment),  we  assume  that  NFCs+  will  need  to  go  through  an 
intermediary to access clearing services. 

On  the  basis  of  ISDA  estimates220  on  the  minimum  clearing  fees  for  users  of  clearing 
brokers, we assume that each NFC+ counterparty has to pay minimum fees ranging from 
EUR 95 000 to EUR 265 000 to access clearing in each assess class in which it is active. 

218  ESMA,  EMIR  Review  report  n°1  –  Review  of  the  use  of  OTC  derivatives  by  non-financial 
counterparties,  Figure  2,  p.  16.  https://www.esma.europa.eu/sites/default/files/library/2015/11/esma-
2015-1251_-_emir_review_report_no.1_on_non_financial_firms.pdf  

219 Ibid, Table 4, p.13. 
220  Philip  Stafford,  OTC  markets,  Derivatives  'Big  Bang'  catches  market  off  guard,  Financial  Times, 

02.02.2017, https://www.ft.com/content/086ec02a-e6fc-11e6-967b-c88452263daf  

151 

 
 
 
                                                 
For the benefit of the analysis, we also assume that these NFC+ need to access different 
asset classes via different clearing members/CCPs. 

Assuming that the 85 NFC+ are below the clearing threshold for the second asset class, 
this  means  that  NFCs+  active  in  two  asset  classes  will  not  have  to  face  additional 
clearing fees of a magnitude of: 

i) Lower range:  85*95 000 = 8.1 million; and   
ii) Upper range: 85*265 000 = 22.5 million. 

Assuming that the 8 NFC+ are below the clearing threshold for the second and third asset 
classes, and assuming they would face two different sets of clearing fees for those asset 
classes,  this  means  that  NFCs+  active  in  three  asset  classes  will  not  have  to  face 
additional CM clearing fees of a magnitude of: 

i) Lower range: 8*(95 000*2) = 1.5 million; and 
ii) Upper range: 8*(265 000*2) = 4.24 million. 

On this basis, the total cost avoidance of option 2 can be estimated as follows: 

i) Lower range: 8.1 + 1.5 = 9.6 million; and 
ii) Upper range: 22.5 + 4.24 = 26.74 million. 

It  should  be  noted  that  these  estimates  do  not  take  into  account  the  additional  cost 
reductions  resulting  from  the  reduced  operational  costs  of  clearing.  The  total  cost 
reduction is thus expected to be even higher than the figures presented here, provided that 
the  estimate  on  minimum  clearing  fees  accurately  reflects  market  prices.  It  should 
however  also  be  considered  that  the  minimum  clearing  fees  are  expected  to  decrease 
slowly over time given the measures proposed in this area (see section 8.2.2 below).  

8.2.1.1.2. Estimated impact on financial stability 

We  can  estimate  the  proportion  of  transactions  that  will  no  longer  be  captured  by  the 
clearing  obligation,  in  order  to  provide  a  sense  of  the  systemic  risk  they  represent  and 
their impact on financial stability.  

Based on the general figures provided in Table 4, we know that 221 005 trades relate to 
424 counterparties. We also know that the average number of trades per counterparty is 
521 and that 93 NFC+ are active in more than one asset class. We can therefore deduct 
the  average  amount  of  transactions  that  would  no  longer  be  captured  by  the  clearing 
obligation, as follows: 

Number of transactions: 93*521 = 48 453 transactions.  

Those  transactions  can  be  associated  with  a  certain  notional  amount,  based  on  the  fact 
that the total notional amount for NFC+ presented in Table 4 amounts to EUR 1 568 375 
million, for a total number of trades of 221 005: 

152 

 
 
 
 
 
Number of transactions 

Notional amount (million) 

221 005 
48 453 

1 568 375 
6 827  

Out-of-
scope 
transactions  would  therefore  amount  to  EUR  6  827  million  notional  amount.  This 
represents  0.001%  of  the  total  outstanding  volumes  for  NFCs  and  FCs  as  measured  by 
total notional amount221.    

8.2.1.2. Small Financial Counterparties (SFCs)  

8.2.1.2.1. Estimated cost reduction 

First, the objective is to identify the population of small financials – SFCs - that will no 
longer be subject to the obligation to clear, according to the preferred option presented in 
Table 9 of section 6 (Option 2).  

For the purpose of this impact assessment, the estimates will rely only on the interest rate 
derivative asset class, as there is no public data available to provide estimates for all the 
asset  classes.  In  addition,  solely  for  the  benefit  of  reaching  a  cost  estimate,  SFCs  are 
defined  as  financials  with  a  volume  of  activity  below  5bn,  as  identified  in  Table  1  of 
ESMA's Consultation Paper on the clearing obligation for financial counterparties with a 
limited  volume  of  activity222.  This  means  that  we  assume,  due  to  the  constraints  of  the 
data publicly available, that the clearing threshold beyond which FCs would be required 
to clear is 5bn for the interest rate derivatives asset class. This does not prejudge of the 
final  threshold  fixed  by  the  legal  framework.  On  the  basis  of  these  assumptions,  the 
calculated estimates will help provide a sense of the magnitude of the cost reductions for 
SFCs. 

We can deduce from Table 1 that there are 5 365 SFCs with a volume of activity below 
5bn (i.e. 5 855 – 490). This means that those 5 365 SFCs would not be required to clear, 
assuming the clearing threshold is at 5bn for the interest rate derivatives asset class.  

Second,  the  objective  is  to  estimate  the  cost  reduction  that  each  of  these  SFCs  would 
benefit from the removal of the obligation to centrally clear derivatives in the interest rate 
derivatives asset class.     

On  the  basis  of  ISDA  estimates223  on  the  minimum  clearing  fees  for  users  of  clearing 
brokers, we assume that each of the SFCs has to pay minimum fees ranging from EUR 
95 000 to EUR 265 000 to access clearing in the interest rate derivatives asset class. This 
means that the 5 365 SFCs active in the interest rate derivatives asset class will not have 
to face additional clearing fees of a magnitude of: 

221 See grand total in column E, line 7 of Table 2, p.8 of ESMA, EMIR Review report n°1 – Review of the 

use of OTC derivatives by non-financial counterparties. 

222  See  ESMA,  Consultation  Paper  on  the  clearing  obligation  for  financial  counterparties  with  a  limited 

volume of activity, 13 July 2016, table 1, p.13. 

223  Philip  Stafford,  OTC  markets,  Derivatives  'Big  Bang'  catches  market  off  guard,  Financial  Times, 

02.02.2017, https://www.ft.com/content/086ec02a-e6fc-11e6-967b-c88452263daf  

153 

 
 
 
 
                                                 
i) Lower range: 5 365 * 95 000 = 509.7 million; and 
ii) Upper range: 5 365 * 265 000 = 1.4 billion. 

On this basis, the total cost avoidance of option 2 can be estimated to range from EUR 
509.7 million to EUR 1.4 billion. 

It  should  be  noted  that  these  estimates  do  not  take  into  account  the  additional  cost 
reductions  resulting  from  the  reduced  operational  costs  of  clearing.  The  total  cost 
reductions are thus expected to be even higher than the figures presented here, provided 
that  the  estimate  on  minimum  clearing  fees  accurately  reflects  market  prices.  It  should 
however  also  be  considered  that  the  minimum  clearing  fees  are  expected  to  decrease 
slowly over time given the measures proposed in this area (see section 3).  

8.2.1.2.2. Impact on financial stability 

We can also deduce from the above-mentioned Table 2 that they represent 91.6% of the 
total number of FCs active in the interest rate derivative asset class, and that they amount 
for 0.59% of the cumulated notional amounts.  

The  total  cumulated  notional  amount  in  the  interest  rate  derivative  asset  class  amounts 
approximately to EUR 337 trillion. This  means that the corresponding notional  amount 
of the SFCs that will no longer be captured by the clearing obligation in that asset class 
amounts to approximately 2 trillion (0.59% of 337 trillion). This represents 0.32% of the 
total outstanding volumes for NFCs and FCs as measured by total notional amount224.    

8.2.3. On cost reductions related to improved access to clearing  

The  purpose  of  this  section  is  to  provide  estimates  on  the  cost  reductions  that  the 
preferred option presented in Table 9 of section 6 (option 2) will trigger both for NFCs 
and  small  financials,  as  peripheral  counterparties  that  face  obstacles  in  accessing 
clearing. 

For the purpose of the impact assessment only, and without drawing conclusions on the 
structure of the clearing market, we will use ISDA estimates225 indicating that minimum 
clearing  fees  for  counterparties  with  a  limited  volume  of  OTC  derivative  activities  can 
range from EUR 95 000 to EUR 265 000. 

Solely for the purpose of providing a sense of the magnitude of the cost reductions that 
NFCs  and  small  financials  would  benefit  from,  we  assume  that,  as  a  result  of  the 
application of the preferred option, the minimum fee will decrease from EUR 95 000 to 
EUR  20  000.  This  figure  is  based on  a  conservative  estimate  of  market  intelligence  on 

224 See grand total in column E, line 7 of Table 2, p.8 of ESMA, EMIR Review report n°1 – Review of the 

use of OTC derivatives by non-financial counterparties. 

225  Philip  Stafford,  OTC  markets,  Derivatives  'Big  Bang'  catches  market  off  guard,  Financial  Times, 

02.02.2017, https://www.ft.com/content/086ec02a-e6fc-11e6-967b-c88452263daf  

154 

 
 
 
                                                 
current clearing offerings in the EU for a small financial that has access to clearing226. It 
is therefore purely indicative. For the purpose of calculating cost reductions, we will use 
this figure as a reference, with the caveat that it does not constitute an average price of 
clearing  offerings  and  does  not  aim  to  represent  an  ideal  price.  On  this  basis,  we  can 
therefore estimate a reduction of EUR 75 000 of the minimum fee. Likewise, we apply 
the same reduction factor to the upper fee, meaning a decrease from 265 000 to 55 000. 
This amounts to a cost reductions of EUR 210 000 of the maximum fee. 

We then need to estimate the proportion of smaller counterparties that will be subject to 
these  clearing  fees.  They  include  NFC+  and  small  financials  that  remain  subject  to  the 
clearing obligation following the application of the preferred options. 

For  NFCs,  we  consider  those  NFC+  that  are  active  in  only  one  asset  class227.  They 
represent 78% of the total number of counterparties, i.e. 0.78 * 424 = 331. This means 
that those NFC+ that remain subject to the clearing obligation would benefit from a cost 
reduction of:  

i) Lower range: 331 * 75 000 = 24.8 million; and 
ii) Upper range: 331 * 210 000 = 69.5 million. 

For financial counterparties (FCs), we need to consider FCs that are i) small enough to 
require  an  intermediary  to  clear  and  ii)  big  enough  not  to  be  exempted  from  the 
requirement  to  centrally  clear,  namely  SFCs  (following  the application of  the  preferred 
option described in section 8.2.1.2). 

On the assumption that all FCs228 will require an intermediary to access clearing, minus 
dealers and SFCs, we calculate that about 435 small financials would benefit from a cost 
reduction of:  

i) Lower range: 435 * 75,000 = 32.6 million; and 
ii) Upper range: 435 * 210 000 = 91.3 million. 

On this basis, the total cost avoidance of option 2 can be estimated to range from EUR 
57.4 million to 1.5 billion. 

226   This  figure  was  provided  by  a  European  association  as  an  example  of  the  minimum  costs  to  access 

clearing for a small bank in the EU. 

227  ESMA,  EMIR  Review  report  n°1  –  Review  of  the  use  of  OTC  derivatives  by  non-financial 

counterparties, Table 4, p. 13. 

228  As  defined  in  line  2  of  table  2  of  ESMA,  EMIR  Review  report  n°1  –  Review  of  the  use  of  OTC 

derivatives by non-financial counterparties, Table 4, p. 8. 

155