Article 514 Counterparty credit risk and the Original Exposure Method
By 31 December 2016, the Commission shall review and report on the application of Article 275 and shall submit that report to the European Parliament and the Council, and, if appropriate, a legislative proposal.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The Commission has today adopted a package of measures to deepen the Capital Markets Union together with the Communication "Completing Capital Markets Union by 2019 – time to accelerate delivery". The package includes this proposal, as well as a proposal for an enabling EU framework on covered bonds, a proposal to facilitate the cross-border distribution of investment funds, a proposal for an enabling framework on European crowdfunding service providers (ECSP) for business, as well as a proposal on the law applicable to the third-party effects of assignments of claims and a Communication on the applicable law to the proprietary effects of transactions in securities. Covered bonds are debt obligations issued by credit institutions and secured against a ringfenced pool of assets to which bondholders have direct recourse as preferred creditors. At the same time, bondholders remain entitled to claim against the issuing entity as ordinary creditors. This double claim against the cover pool and the issuer is referred to as the ‘dual recourse’ mechanism. Covered bonds are issued by credit institutions and are as such an important and efficient source of funding for European banks. They facilitate the financing of mortgage and public sector loans, thereby supporting lending more broadly. A significant advantage of covered bonds compared with other kinds of bank funding sources such as asset-backed securities is the fact that banks retain the risk on their balance sheets and investors have claims directly with the bank. Therefore, covered bonds allow banks to lend not only more, but also more safely. Not least for that reason, covered bonds fared well during the financial crisis compared with other funding instruments. They proved to be a reliable and stable funding source for European banks at a time when other funding channels were drying up. An enabling framework for covered bonds at EU level would enhance their use as a stable and cost-effective source of funding for credit institutions, especially where markets are less developed, in order to help finance the real economy in line with the objectives of the Capital Markets Union (CMU). The enabling framework would also provide investors with a wider and safer range of investment opportunities and would help preserve financial stability. Member States will have to transpose these rules, ensuring that national covered bond frameworks comply with the principles-based requirements set out in this proposal. All covered bonds across Europe will therefore have to respect the minimum harmonisation requirements as set out in this proposal. Th e enabling framework for covered bonds is featured in the Commission Work Programme for 2018 1 . In the letter of intent following up his latest State of the Union speech, the President of the European Commission confirmed that an enabling framewor k for covered bonds should be launched or completed by end-2018 to ensure a deeper and fairer internal market. 2 The Commission confirmed this intention in the Mid-Term Review of the CMU Action Plan of June 2017 3 . The development of covered bonds across th e single market is uneven; they are very important in some Member States, less so in others. Furthermore, they are only partially addressed in Union law. While they benefit from preferential prudential and regulatory treatment in various respects in the li ght of the lower risks (e.g. banks investing in them do not have to set aside as much regulatory capital as when they invest in other assets), Union law does not comprehensively address what actually constitutes a covered bond. Rather, preferential treatme nts are granted to covered bonds as defined in Directive 2009/65/EC 4 . However, that definition was drafted with a specific purpose in mind – limiting what undertakings for collective investment in transferable securities (UCITS) could invest in – and is no t fit for the broader policy objectives of the CMU. A Union legislative framework on covered bonds should expand the capacity of credit institutions to provide financing to the real economy and contribute to the development of covered bonds across the Union, particularly in Member States where no market for them currently exists. The framework would also increase cross-border flows of capital and investment. It would thus contribute to the CMU and in particular to the further leveraging of credit institutions’ capacity to support the wider economy. In particular, it would ensure that banks have a broad range of safe and efficient funding tools at their disposal. The framework consists of a Directive and a Regulation – the two instruments should be seen as a single package. This proposed Regulation will mainly amend Article 129 of Regulation (EU) No 575/2013 (Capital Requirements Regulation (CRR)). The amendments build on the current prudential treatment but add requirements on minimum overcollateralisation and substitution assets. They would strengthen the requirements for covered bonds being granted preferential capital treatment. The proposed Directive will specify the core elements of covered bonds and provide a common definition as a consistent and sufficiently detailed point of reference for prudential regulation purposes, applicable across financial sectors. It will establish the structural features of the instrument, a covered bond specific public supervision, rules allowing use of the ‘European Covered Bonds’ label and competent authorities’ publication obligations in the field of covered bonds.
Article 515 Monitoring and evaluation
1. By 28 June 2014, EBA, together with ESMA, shall report on the functioning of this Regulation with the related obligations under Regulation (EU) No 648/2012 and in particular with regard to institutions operating a central counterparty, in order to avoid duplication of requirements for derivative transactions and thereby avoid increased regulatory risk and increased costs for monitoring by competent authorities. 2. EBA shall monitor and evaluate the operation of the provisions for own funds requirements for exposures to a central counterparty as set out in Section 9 of Chapter 6 of Title II of Part Three. By 1 January 2015 EBA shall report to the Commission on the impact and effectiveness of such provisions. 3. By 31 December 2016, the Commission shall review, and report on, the reconciliation of this Regulation with the related obligations under Regulation (EU) No 648/2012, the own funds requirements as set out in Section 9 of Chapter 6 of Title II of Part Three and shall submit that report to the European Parliament and the Council, and, if appropriate, a legislative proposal.
Article 516 Long-term financing
By 31 December 2015, the Commission shall report on the impact of this Regulation on the encouragement of long-term investments in growth promoting infrastructure.
Article 517 Definition of eligible capital
By 31 December 2014, the Commission shall review, and report on, the appropriateness of the definition of eligible capital being applied for the purposes of Title III of Part Two and Part Four and shall submit that report to the European Parliament and the Council, and, if appropriate, a legislative proposal.
Article 518 Review of capital instruments which may be written down or converted at the point of non-viability
By 31 December 2015, the Commission shall review, and report on, whether this Regulation should contain a requirement that Additional Tier 1 or Tier 2 capital instruments are to be written down in the event of a determination that an institution is no longer viable. The Commission shall submit that report to the European Parliament and the Council, together with a legislative proposal, if appropriate.
Article 519 Deduction of defined benefit pension fund assets from Common Equity Tier 1 items
By 30 June 2014, EBA shall prepare a report on whether the revised IAS 19 in conjunction with the deduction of net pension assets as set out in Article 36(1)(e) and changes in the net pension liabilities lead to undue volatility of institutions' own funds. Taking into account the EBA report, the Commission shall by, 31 December 2014 prepare a report for the European Parliament and the Council on the issue referred to in the first paragraph, together with a legislative proposal, if appropriate, to introduce a treatment which adjusts defined net benefit pension fund assets or liabilities for the calculation of own funds.
Article 520 Amendment of Regulation (EU) No 648/2012
Regulation (EU) No 648/2012 is amended as follows: (1) the following Chapter is added in Title IV: ‘CHAPTER 4 Calculations and reporting for the purposes of Regulation (EU) No 575/2013 
‘Article 50a
Calculation of K CCP
1. For the purposes of Article 308 of 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 ( 38 ), a CCP shall calculate K CCP as specified in paragraph 2 of this Article for all contracts and transactions it clears for all its clearing members falling within the coverage of the given default fund.
2. A CCP shall calculate the hypothetical capital (K CCP ) as follows:
where:
EBRM i = exposure value before risk mitigation that is equal to the exposure value of the CCP to clearing member i arising from all the contracts and transactions with that clearing member, calculated without taking into account the collateral posted by that clearing member;
EBRM i = exposure value before risk mitigation that is equal to the exposure value of the CCP to clearing member i arising from all the contracts and transactions with that clearing member, calculated without taking into account the collateral posted by that clearing member;
EBRM i
=
exposure value before risk mitigation that is equal to the exposure value of the CCP to clearing member i arising from all the contracts and transactions with that clearing member, calculated without taking into account the collateral posted by that clearing member;
IM i = the initial margin posted to the CCP by clearing member i;
IM i = the initial margin posted to the CCP by clearing member i;
IM i
=
the initial margin posted to the CCP by clearing member i;
DF i = the pre-funded contribution of clearing member i;
DF i = the pre-funded contribution of clearing member i;
DF i
=
the pre-funded contribution of clearing member i;
RW = a risk weight of 20 %;
RW = a risk weight of 20 %;
RW
=
a risk weight of 20 %;
capital ratio = 8 %.
capital ratio = 8 %.
capital ratio
=
8 %.
All values in the formula in the first subparagraph shall relate to the valuation at the end of the day before the margin called on the final margin call of that day is exchanged.
3. A CCP shall undertake the calculation required by paragraph 2 at least quarterly or more frequently where required by the competent authorities of those of its clearing members which are institutions.
4. For the purpose of paragraph 3, EBA shall develop draft implementing technical standards to specify the following:
(a) the frequency and dates of the calculation laid down in paragraph 2;
(a) the frequency and dates of the calculation laid down in paragraph 2;
(b) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of calculation and reporting than those referred to in point (a).
(b) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of calculation and reporting than those referred to in point (a).
EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. 
‘Article 50b
General rules for the calculation of K CCP
For the purposes of the calculation laid down in Article 50a(2), the following shall apply:
(a) a CCP shall calculate the value of the exposures it has to its clearing members as follows: (i) for exposures arising from contracts and transactions listed in Article 301(1)(a) and (d) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the mark-to-market method laid down in Article 274 thereof; (ii) for exposures arising from contracts and transactions listed in Article 301(1)(b), (c) and (e) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the Financial Collateral Comprehensive Method specified in Article 223 of that Regulation with supervisory volatility adjustments, specified in Articles 223 and 224 of that Regulation. The exception set out in point (a) of Article 285(3) of that Regulation, shall not apply; (iii) for exposures arising from transactions not listed in Article 301(1) of Regulation (EU) No 575/2013 and which entails settlement risk only it shall calculate them in accordance with Part Three, Title V of that Regulation;
(a) a CCP shall calculate the value of the exposures it has to its clearing members as follows:
(i) for exposures arising from contracts and transactions listed in Article 301(1)(a) and (d) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the mark-to-market method laid down in Article 274 thereof;
(i) for exposures arising from contracts and transactions listed in Article 301(1)(a) and (d) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the mark-to-market method laid down in Article 274 thereof;
(ii) for exposures arising from contracts and transactions listed in Article 301(1)(b), (c) and (e) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the Financial Collateral Comprehensive Method specified in Article 223 of that Regulation with supervisory volatility adjustments, specified in Articles 223 and 224 of that Regulation. The exception set out in point (a) of Article 285(3) of that Regulation, shall not apply;
(ii) for exposures arising from contracts and transactions listed in Article 301(1)(b), (c) and (e) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the Financial Collateral Comprehensive Method specified in Article 223 of that Regulation with supervisory volatility adjustments, specified in Articles 223 and 224 of that Regulation. The exception set out in point (a) of Article 285(3) of that Regulation, shall not apply;
(iii) for exposures arising from transactions not listed in Article 301(1) of Regulation (EU) No 575/2013 and which entails settlement risk only it shall calculate them in accordance with Part Three, Title V of that Regulation;
(iii) for exposures arising from transactions not listed in Article 301(1) of Regulation (EU) No 575/2013 and which entails settlement risk only it shall calculate them in accordance with Part Three, Title V of that Regulation;
(b) for institutions that fall under the scope of Regulation (EU) No 575/2013 the netting sets are the same as those defined in Part Three, Title II of that Regulation;
(b) for institutions that fall under the scope of Regulation (EU) No 575/2013 the netting sets are the same as those defined in Part Three, Title II of that Regulation;
(c) when calculating the values referred to in point (a), the CCP shall subtract from its exposures the collateral posted by its clearing members, appropriately reduced by the supervisory volatility adjustments in accordance with the Financial Collateral Comprehensive Method specified in Article 224 of Regulation (EU) No 575/2013;
(c) when calculating the values referred to in point (a), the CCP shall subtract from its exposures the collateral posted by its clearing members, appropriately reduced by the supervisory volatility adjustments in accordance with the Financial Collateral Comprehensive Method specified in Article 224 of Regulation (EU) No 575/2013;
(e) where a CCP has exposures to one or more CCPs it shall treat any such exposures as if they were exposures to clearing members and include any margin or pre-funded contributions received from those CCPs in the calculation of K CCP ;
(e) where a CCP has exposures to one or more CCPs it shall treat any such exposures as if they were exposures to clearing members and include any margin or pre-funded contributions received from those CCPs in the calculation of K CCP ;
(f) where a CCP has in place a binding contractual arrangement with its clearing members that allows it to use all or part of the initial margin received from its clearing members as if they were pre-funded contributions, the CCP shall consider that initial margin as prefunded contributions for the purposes of the calculation in paragraph 1 and not as initial margin;
(f) where a CCP has in place a binding contractual arrangement with its clearing members that allows it to use all or part of the initial margin received from its clearing members as if they were pre-funded contributions, the CCP shall consider that initial margin as prefunded contributions for the purposes of the calculation in paragraph 1 and not as initial margin;
(h) when applying the Mark-to-Market Method as set out in Article 274 of Regulation (EU) No 575/2013, a CCP shall replace the formula in point (c)(ii) of Article 298(1) of that Regulation with the following: where the numerator of NGR is calculated in accordance with Article 274(1) of that Regulation and just before the variation margin is actually exchanged at the end of the settlement period, and the denominator is gross replacement cost;
(h) when applying the Mark-to-Market Method as set out in Article 274 of Regulation (EU) No 575/2013, a CCP shall replace the formula in point (c)(ii) of Article 298(1) of that Regulation with the following:
where the numerator of NGR is calculated in accordance with Article 274(1) of that Regulation and just before the variation margin is actually exchanged at the end of the settlement period, and the denominator is gross replacement cost;
(i) where a CCP cannot calculate the value of NGR as set out in point (c)(ii) of Article 298(1) of Regulation (EU) No 575/2013, it shall: (i) notify those of its clearing members which are institutions and their competent authorities about its inability to calculate NGR and the reasons why it is unable to carry out the calculation; (ii) for a period of three months, it may use a value of NGR of 0,3 to perform the calculation of PCE red specified in point (h) of this Article;
(i) where a CCP cannot calculate the value of NGR as set out in point (c)(ii) of Article 298(1) of Regulation (EU) No 575/2013, it shall:
(i) notify those of its clearing members which are institutions and their competent authorities about its inability to calculate NGR and the reasons why it is unable to carry out the calculation;
(i) notify those of its clearing members which are institutions and their competent authorities about its inability to calculate NGR and the reasons why it is unable to carry out the calculation;
(ii) for a period of three months, it may use a value of NGR of 0,3 to perform the calculation of PCE red specified in point (h) of this Article;
(ii) for a period of three months, it may use a value of NGR of 0,3 to perform the calculation of PCE red specified in point (h) of this Article;
(j) where, at the end of the period specified in point (ii) of point (i), the CCP would still be unable to calculate the value of NGR, it shall do the following: (i) stop calculating K CCP ; (ii) notify those of its clearing members which are institutions and their competent authorities that it has stopped calculating K CCP ;
(j) where, at the end of the period specified in point (ii) of point (i), the CCP would still be unable to calculate the value of NGR, it shall do the following:
(i) stop calculating K CCP ;
(i) stop calculating K CCP ;
(ii) notify those of its clearing members which are institutions and their competent authorities that it has stopped calculating K CCP ;
(ii) notify those of its clearing members which are institutions and their competent authorities that it has stopped calculating K CCP ;
(k) for the purpose of calculating the potential future exposure for options and swaptions in accordance with the Mark-to-Market Method specified in Article 274 of Regulation (EU) No 575/2013, a CCP shall multiply the notional amount of the contract by the absolute value of the option's delta as set out in point (a) of Article 280(1) of that Regulation;
(k) for the purpose of calculating the potential future exposure for options and swaptions in accordance with the Mark-to-Market Method specified in Article 274 of Regulation (EU) No 575/2013, a CCP shall multiply the notional amount of the contract by the absolute value of the option's delta as set out in point (a) of Article 280(1) of that Regulation;
(l) where a CCP has more than one default fund, it shall carry out the calculation laid down in Article 50a(2) for each default fund separately.
(l) where a CCP has more than one default fund, it shall carry out the calculation laid down in Article 50a(2) for each default fund separately. 
‘Article 50c
Reporting of information
1. For the purposes of Article 308 of Regulation (EU) No 575/2013, a CCP shall report the following information to those of its clearing members which are institutions and to their competent authorities:
(a) the hypothetical capital (K CCP );
(a) the hypothetical capital (K CCP );
(b) the sum of pre-funded contributions (DF CM );
(b) the sum of pre-funded contributions (DF CM );
(c) the amount of its pre-funded financial resources that it is required to use — by law or due to a contractual agreement with its clearing members — to cover its losses following the default of one or more of its clearing members before using the default fund contributions of the remaining clearing members (DF CCP );
(c) the amount of its pre-funded financial resources that it is required to use — by law or due to a contractual agreement with its clearing members — to cover its losses following the default of one or more of its clearing members before using the default fund contributions of the remaining clearing members (DF CCP );
(d) the total number of its clearing members (N);
(d) the total number of its clearing members (N);
(e) the concentration factor (β), as set out in Article 50d.
(e) the concentration factor (β), as set out in Article 50d.
Where the CCP has more than one default fund, it shall report the information in the first subparagraph for each default fund separately.
2. The CCP shall notify those of its clearing members which are institutions at least quarterly or more frequently where required by the competent authorities of those clearing members.
3. EBA shall develop draft implementing technical standards to specify the following:
(a) the uniform template for the purpose of the reporting specified in paragraph 1;
(a) the uniform template for the purpose of the reporting specified in paragraph 1;
(b) the frequency and dates of the reporting specified in paragraph 2;
(b) the frequency and dates of the reporting specified in paragraph 2;
(c) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of reporting than those referred to in point (b).
(c) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of reporting than those referred to in point (b).
EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. 
‘Article 50d
Calculation of specific items to be reported by the CCP
For the purposes of Article 50c, the following shall apply:
(a) where the rules of a CCP provide that it use part or all of its financial resources in parallel to the pre-funded contributions of its clearing members in a manner that makes those resources equivalent to pre-funded contributions of a clearing member in terms of how they absorb the losses incurred by the CCP in the case of the default or insolvency of one or more of its clearing members, the CCP shall add the corresponding amount of those resources to DF CM ;
(a) where the rules of a CCP provide that it use part or all of its financial resources in parallel to the pre-funded contributions of its clearing members in a manner that makes those resources equivalent to pre-funded contributions of a clearing member in terms of how they absorb the losses incurred by the CCP in the case of the default or insolvency of one or more of its clearing members, the CCP shall add the corresponding amount of those resources to DF CM ;
(b) where the rules of a CCP provide that it use part or all of its financial resources to cover its losses due to the default of one or more of its clearing members after it has depleted its default fund, but before it calls on the contractually committed contributions of its clearing members, the CCP shall add the corresponding amount of those additional financial resources to the total amount of pre-funded contributions (DF) as follows: .
(b) where the rules of a CCP provide that it use part or all of its financial resources to cover its losses due to the default of one or more of its clearing members after it has depleted its default fund, but before it calls on the contractually committed contributions of its clearing members, the CCP shall add the corresponding amount of those additional financial resources to the total amount of pre-funded contributions (DF) as follows:
(c) a CCP shall calculate the concentration factor (β) in accordance with the following formula: where: PCE red,i = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with clearing member i ; PCE red,1 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the largest PCE red value; PCE red,2 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the second largest PCE red value.
(c) a CCP shall calculate the concentration factor (β) in accordance with the following formula:
where:
PCE red,i = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with clearing member i ;
PCE red,i = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with clearing member i ;
PCE red,i
=
the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with clearing member i ;
PCE red,1 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the largest PCE red value;
PCE red,1 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the largest PCE red value;
PCE red,1
=
the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the largest PCE red value;
PCE red,2 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the second largest PCE red value.
PCE red,2 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the second largest PCE red value.
PCE red,2
=
the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the second largest PCE red value. (2) in Article 11(15), point (b) is deleted; (3) in Article 89, the following paragraph is inserted: ‘5a. Until 15 months after the date of entry into force of the latest of the regulatory technical standards referred to in Articles 16, 25, 26, 29, 34, 41, 42, 44, 45, 47 and 49, or until a decision is made under Article 14 on the authorisation of the CCP, whichever is earlier, that CCP shall apply the treatment specified in the third subparagraph of this paragraph. Until 15 months after the date of entry into force of the latest of the regulatory technical standards referred to in Articles 16, 26, 29, 34, 41, 42, 44, 45, 47 and 49, or until a decision is made under Article 25 on the recognition of the CCP, whichever is earlier, that CCP shall apply the treatment specified in the third subparagraph of this paragraph. Until the deadlines defined in the first two subparagraphs of this paragraph, and subject to the fourth subparagraph of this paragraph, where a CCP neither has a default fund nor has in place a binding arrangement with its clearing members that allows it to use all or part of the initial margin received from its clearing members as if they were pre-funded contributions, the information it is to report in accordance with Article 50c(1) shall include the total amount of initial margin it has received from its clearing members. The deadlines referred to in the first and second subparagraphs of this paragraph may be extended by six months in accordance with a Commission implementing act adopted pursuant to Article 497(3) of Regulation (EU) No 575/2013.’ . (3) in Article 89, the following paragraph is inserted: ‘5a. Until 15 months after the date of entry into force of the latest of the regulatory technical standards referred to in Articles 16, 25, 26, 29, 34, 41, 42, 44, 45, 47 and 49, or until a decision is made under Article 14 on the authorisation of the CCP, whichever is earlier, that CCP shall apply the treatment specified in the third subparagraph of this paragraph. Until 15 months after the date of entry into force of the latest of the regulatory technical standards referred to in Articles 16, 26, 29, 34, 41, 42, 44, 45, 47 and 49, or until a decision is made under Article 25 on the recognition of the CCP, whichever is earlier, that CCP shall apply the treatment specified in the third subparagraph of this paragraph. Until the deadlines defined in the first two subparagraphs of this paragraph, and subject to the fourth subparagraph of this paragraph, where a CCP neither has a default fund nor has in place a binding arrangement with its clearing members that allows it to use all or part of the initial margin received from its clearing members as if they were pre-funded contributions, the information it is to report in accordance with Article 50c(1) shall include the total amount of initial margin it has received from its clearing members. The deadlines referred to in the first and second subparagraphs of this paragraph may be extended by six months in accordance with a Commission implementing act adopted pursuant to Article 497(3) of Regulation (EU) No 575/2013.’ .
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal The term 'commodity dealer' covers a wide spectrum of actors in energy and commodity markets: some trade exclusively in commodity derivative contracts and resemble investment firms in terms of functions and risks, whereas others trade commodity derivatives purely as an ancillary activity to commodities production. The requirements laid down in Regulation (EU) No 575/2013 (the 'Capital Requirements Regulation' or 'CRR') and in Directive 2013/36/EU (the 'Capital Requirements Directive' or 'CRD') apply to both credit institutions and investment firms. The prudential regime applicable to investment firms is derived from that imposed on credit institutions, adapted as a function of the investment services that they provide. Articles 493(1) and 498(1) of the CRR exempt commodity dealers ("investment firms whose main business consists exclusively of the provision of investment services or activities in relation to the financial instruments set out in points 5, 6, 7, 9 and 10 of Section C of Annex I to Directive 2004/39/EC and to whom Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field did not apply on 31 December 2006") from large exposures requirements and from own funds requirements respectively. Both exemptions expire on 31 December 2017. This 'sunset clause' was originally included in the CRR in order to allow time for regulators to determine a prudential regulation adapted to the risk profile of commodity dealers. 1 To this end, Articles 493(2) and 498(2) of the CRR mandate the Commission to prepare reports by the end of 2015. On the basis of those reports, the Commission may decide to submit proposals to amend the CRR. The Commission is also required to submit, within the same deadline, a report on an appropriate regime for the prudential supervision of investment firms in general. Here again, the report may be followed by a Commission proposal. Since the abovementioned reports are related, the Commission decided to undertake a single review (henceforth 'investment firms review') and prepare a single report on the above topics. This was deemed necessary in order to ensure the development of a coherent prudential framework for all types of investment firms. The work on the investment firms review is already underway: the Commission asked the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) to provide technical advice on the matter. The advice is expected by the end of September 2015. The Commission will then use the advice to prepare its own report. Should the Commission decide to change the existing prudential framework for investment firms, the report will detail the next steps of the investment firms review and the broad outline of the changes the Commission is contemplating. The investment firms review is a complex project which will not be completed by the end of this year. It is therefore highly improbable that any legislation that may result from this review can be prepared, adopted and applied before the current exemptions expire (i.e. before the end of 2017). This has implications for commodity dealers: if no specific prudential framework that may result from the investment firm review would be in place by then, they would be subject to the full CRR/CRD requirements starting from 1 January 2018. There are two problems related to this scenario. First, commodity dealers would become subject to the full CRR/CRD requirements without a conscious (and informed) decision that such treatment is indeed the most appropriate one for them. Second, assuming that the investment firm review would result in a tailor-made prudential framework for commodity dealers, they would be deprived of a stable regulatory framework. They would move from the current treatment where they are exempted from large exposures and own funds requirements, to a temporary treatment comprising the full CRR/CRD requirements, and eventually to the aforementioned tailor-made framework within a very short period of time (one to two years). This is not a desirable outcome. To prevent that this situation arises it is therefore opportune to extend the existing exemptions laid down in the CRR. The extension should take into account the amount of time that will be necessary to conclude the investment firms review and to prepare, adopt and apply any legislation that may result from that review.
Revised version (Article 520 Amendment of Regulation (EU) No 648/2012):
Regulation (EU) No 648/2012 is amended as follows: (1) the following Chapter is added in Title IV: ‘CHAPTER 4 Calculations and reporting for the purposes of Regulation (EU) No 575/2013 
‘Article 50a
Calculation of K CCP
1. For the purposes of Article 308 of 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 ( *1 ), a CCP shall calculate K CCP as specified in paragraph 2 of this Article for all contracts and transactions it clears for all its clearing members falling within the coverage of the given default fund.
2. A CCP shall calculate the hypothetical capital (K CCP ) as follows:
where:
EBRM i = exposure value before risk mitigation that is equal to the exposure value of the CCP to clearing member i arising from all the contracts and transactions with that clearing member, calculated without taking into account the collateral posted by that clearing member;
EBRM i = exposure value before risk mitigation that is equal to the exposure value of the CCP to clearing member i arising from all the contracts and transactions with that clearing member, calculated without taking into account the collateral posted by that clearing member;
EBRM i
=
exposure value before risk mitigation that is equal to the exposure value of the CCP to clearing member i arising from all the contracts and transactions with that clearing member, calculated without taking into account the collateral posted by that clearing member;
IM i = the initial margin posted to the CCP by clearing member i;
IM i = the initial margin posted to the CCP by clearing member i;
IM i
=
the initial margin posted to the CCP by clearing member i;
DF i = the pre-funded contribution of clearing member i;
DF i = the pre-funded contribution of clearing member i;
DF i
=
the pre-funded contribution of clearing member i;
RW = a risk weight of 20 %;
RW = a risk weight of 20 %;
RW
=
a risk weight of 20 %;
capital ratio = 8 %.
capital ratio = 8 %.
capital ratio
=
8 %.
All values in the formula in the first subparagraph shall relate to the valuation at the end of the day before the margin called on the final margin call of that day is exchanged.
3. A CCP shall undertake the calculation required by paragraph 2 at least quarterly or more frequently where required by the competent authorities of those of its clearing members which are institutions.
4. For the purpose of paragraph 3, EBA shall develop draft implementing technical standards to specify the following:
(a) the frequency and dates of the calculation laid down in paragraph 2;
(a) the frequency and dates of the calculation laid down in paragraph 2;
(b) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of calculation and reporting than those referred to in point (a).
(b) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of calculation and reporting than those referred to in point (a).
EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. 
‘Article 50b
General rules for the calculation of K CCP
For the purposes of the calculation laid down in Article 50a(2), the following shall apply:
(a) a CCP shall calculate the value of the exposures it has to its clearing members as follows:
(a) a CCP shall calculate the value of the exposures it has to its clearing members as follows:
(i) for exposures arising from contracts and transactions listed in Article 301(1)(a) and (d) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the mark-to-market method laid down in Article 274 thereof;
(i) for exposures arising from contracts and transactions listed in Article 301(1)(a) and (d) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the mark-to-market method laid down in Article 274 thereof;
(ii) for exposures arising from contracts and transactions listed in Article 301(1)(b), (c) and (e) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the Financial Collateral Comprehensive Method specified in Article 223 of that Regulation with supervisory volatility adjustments, specified in Articles 223 and 224 of that Regulation. The exception set out in point (a) of Article 285(3) of that Regulation, shall not apply;
(ii) for exposures arising from contracts and transactions listed in Article 301(1)(b), (c) and (e) of Regulation (EU) No 575/2013 it shall calculate them in accordance with the Financial Collateral Comprehensive Method specified in Article 223 of that Regulation with supervisory volatility adjustments, specified in Articles 223 and 224 of that Regulation. The exception set out in point (a) of Article 285(3) of that Regulation, shall not apply;
(iii) for exposures arising from transactions not listed in Article 301(1) of Regulation (EU) No 575/2013 and which entails settlement risk only it shall calculate them in accordance with Part Three, Title V of that Regulation;
(iii) for exposures arising from transactions not listed in Article 301(1) of Regulation (EU) No 575/2013 and which entails settlement risk only it shall calculate them in accordance with Part Three, Title V of that Regulation;
(b) for institutions that fall under the scope of Regulation (EU) No 575/2013 the netting sets are the same as those defined in Part Three, Title II of that Regulation;
(b) for institutions that fall under the scope of Regulation (EU) No 575/2013 the netting sets are the same as those defined in Part Three, Title II of that Regulation;
(c) when calculating the values referred to in point (a), the CCP shall subtract from its exposures the collateral posted by its clearing members, appropriately reduced by the supervisory volatility adjustments in accordance with the Financial Collateral Comprehensive Method specified in Article 224 of Regulation (EU) No 575/2013;
(c) when calculating the values referred to in point (a), the CCP shall subtract from its exposures the collateral posted by its clearing members, appropriately reduced by the supervisory volatility adjustments in accordance with the Financial Collateral Comprehensive Method specified in Article 224 of Regulation (EU) No 575/2013;
(e) where a CCP has exposures to one or more CCPs it shall treat any such exposures as if they were exposures to clearing members and include any margin or pre-funded contributions received from those CCPs in the calculation of K CCP ;
(e) where a CCP has exposures to one or more CCPs it shall treat any such exposures as if they were exposures to clearing members and include any margin or pre-funded contributions received from those CCPs in the calculation of K CCP ;
(f) where a CCP has in place a binding contractual arrangement with its clearing members that allows it to use all or part of the initial margin received from its clearing members as if they were pre-funded contributions, the CCP shall consider that initial margin as prefunded contributions for the purposes of the calculation in paragraph 1 and not as initial margin;
(f) where a CCP has in place a binding contractual arrangement with its clearing members that allows it to use all or part of the initial margin received from its clearing members as if they were pre-funded contributions, the CCP shall consider that initial margin as prefunded contributions for the purposes of the calculation in paragraph 1 and not as initial margin;
(h) when applying the Mark-to-Market Method as set out in Article 274 of Regulation (EU) No 575/2013, a CCP shall replace the formula in point (c)(ii) of Article 298(1) of that Regulation with the following:
(h) when applying the Mark-to-Market Method as set out in Article 274 of Regulation (EU) No 575/2013, a CCP shall replace the formula in point (c)(ii) of Article 298(1) of that Regulation with the following:
where the numerator of NGR is calculated in accordance with Article 274(1) of that Regulation and just before the variation margin is actually exchanged at the end of the settlement period, and the denominator is gross replacement cost;
(i) where a CCP cannot calculate the value of NGR as set out in point (c)(ii) of Article 298(1) of Regulation (EU) No 575/2013, it shall:
(i) where a CCP cannot calculate the value of NGR as set out in point (c)(ii) of Article 298(1) of Regulation (EU) No 575/2013, it shall:
(i) notify those of its clearing members which are institutions and their competent authorities about its inability to calculate NGR and the reasons why it is unable to carry out the calculation;
(i) notify those of its clearing members which are institutions and their competent authorities about its inability to calculate NGR and the reasons why it is unable to carry out the calculation;
(ii) for a period of three months, it may use a value of NGR of 0,3 to perform the calculation of PCE red specified in point (h) of this Article;
(ii) for a period of three months, it may use a value of NGR of 0,3 to perform the calculation of PCE red specified in point (h) of this Article;
(j) where, at the end of the period specified in point (ii) of point (i), the CCP would still be unable to calculate the value of NGR, it shall do the following:
(j) where, at the end of the period specified in point (ii) of point (i), the CCP would still be unable to calculate the value of NGR, it shall do the following:
(i) stop calculating K CCP ;
(i) stop calculating K CCP ;
(ii) notify those of its clearing members which are institutions and their competent authorities that it has stopped calculating K CCP ;
(ii) notify those of its clearing members which are institutions and their competent authorities that it has stopped calculating K CCP ;
(k) for the purpose of calculating the potential future exposure for options and swaptions in accordance with the Mark-to-Market Method specified in Article 274 of Regulation (EU) No 575/2013, a CCP shall multiply the notional amount of the contract by the absolute value of the option's delta as set out in point (a) of Article 280(1) of that Regulation;
(k) for the purpose of calculating the potential future exposure for options and swaptions in accordance with the Mark-to-Market Method specified in Article 274 of Regulation (EU) No 575/2013, a CCP shall multiply the notional amount of the contract by the absolute value of the option's delta as set out in point (a) of Article 280(1) of that Regulation;
(l) where a CCP has more than one default fund, it shall carry out the calculation laid down in Article 50a(2) for each default fund separately.
(l) where a CCP has more than one default fund, it shall carry out the calculation laid down in Article 50a(2) for each default fund separately. 
‘Article 50c
Reporting of information
1. For the purposes of Article 308 of Regulation (EU) No 575/2013, a CCP shall report the following information to those of its clearing members which are institutions and to their competent authorities:
(a) the hypothetical capital (K CCP );
(a) the hypothetical capital (K CCP );
(b) the sum of pre-funded contributions (DF CM );
(b) the sum of pre-funded contributions (DF CM );
(c) the amount of its pre-funded financial resources that it is required to use — by law or due to a contractual agreement with its clearing members — to cover its losses following the default of one or more of its clearing members before using the default fund contributions of the remaining clearing members (DF CCP );
(c) the amount of its pre-funded financial resources that it is required to use — by law or due to a contractual agreement with its clearing members — to cover its losses following the default of one or more of its clearing members before using the default fund contributions of the remaining clearing members (DF CCP );
(d) the total number of its clearing members (N);
(d) the total number of its clearing members (N);
(e) the concentration factor (β), as set out in Article 50d.
(e) the concentration factor (β), as set out in Article 50d.
Where the CCP has more than one default fund, it shall report the information in the first subparagraph for each default fund separately.
2. The CCP shall notify those of its clearing members which are institutions at least quarterly or more frequently where required by the competent authorities of those clearing members.
3. EBA shall develop draft implementing technical standards to specify the following:
(a) the uniform template for the purpose of the reporting specified in paragraph 1;
(a) the uniform template for the purpose of the reporting specified in paragraph 1;
(b) the frequency and dates of the reporting specified in paragraph 2;
(b) the frequency and dates of the reporting specified in paragraph 2;
(c) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of reporting than those referred to in point (b).
(c) the situations in which the competent authority of an institution acting as a clearing member may require higher frequencies of reporting than those referred to in point (b).
EBA shall submit those draft implementing technical standards to the Commission by 1 January 2014.
Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph in accordance with Article 15 of Regulation (EU) No 1093/2010. 
‘Article 50d
Calculation of specific items to be reported by the CCP
For the purposes of Article 50c, the following shall apply:
(a) where the rules of a CCP provide that it use part or all of its financial resources in parallel to the pre-funded contributions of its clearing members in a manner that makes those resources equivalent to pre-funded contributions of a clearing member in terms of how they absorb the losses incurred by the CCP in the case of the default or insolvency of one or more of its clearing members, the CCP shall add the corresponding amount of those resources to DF CM ;
(a) where the rules of a CCP provide that it use part or all of its financial resources in parallel to the pre-funded contributions of its clearing members in a manner that makes those resources equivalent to pre-funded contributions of a clearing member in terms of how they absorb the losses incurred by the CCP in the case of the default or insolvency of one or more of its clearing members, the CCP shall add the corresponding amount of those resources to DF CM ;
(b) where the rules of a CCP provide that it use part or all of its financial resources to cover its losses due to the default of one or more of its clearing members after it has depleted its default fund, but before it calls on the contractually committed contributions of its clearing members, the CCP shall add the corresponding amount of those additional financial resources to the total amount of pre-funded contributions (DF) as follows:
(b) where the rules of a CCP provide that it use part or all of its financial resources to cover its losses due to the default of one or more of its clearing members after it has depleted its default fund, but before it calls on the contractually committed contributions of its clearing members, the CCP shall add the corresponding amount of those additional financial resources to the total amount of pre-funded contributions (DF) as follows:
.
(c) a CCP shall calculate the concentration factor (β) in accordance with the following formula:
(c) a CCP shall calculate the concentration factor (β) in accordance with the following formula:
where:
PCE red,i = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with clearing member i ;
PCE red,i = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with clearing member i ;
PCE red,i
=
the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with clearing member i ;
PCE red,1 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the largest PCE red value;
PCE red,1 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the largest PCE red value;
PCE red,1
=
the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the largest PCE red value;
PCE red,2 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the second largest PCE red value.
PCE red,2 = the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the second largest PCE red value.
PCE red,2
=
the reduced figure for potential future credit exposure for all contracts and transaction of a CCP with the clearing member that has the second largest PCE red value.
(2) in Article 11(15), point (b) is deleted;
(2) in Article 11(15), point (b) is deleted;
(3) in Article 89, the following paragraph is inserted:
(3) in Article 89, the following paragraph is inserted:
‘5a. Until 15 months after the date of entry into force of the latest of the regulatory technical standards referred to in Articles 16, 25, 26, 29, 34, 41, 42, 44, 45, 47 and 49, or until a decision is made under Article 14 on the authorisation of the CCP, whichever is earlier, that CCP shall apply the treatment specified in the third subparagraph of this paragraph.
Until 15 months after the date of entry into force of the latest of the regulatory technical standards referred to in Articles 16, 26, 29, 34, 41, 42, 44, 45, 47 and 49, or until a decision is made under Article 25 on the recognition of the CCP, whichever is earlier, that CCP shall apply the treatment specified in the third subparagraph of this paragraph.
Until the deadlines defined in the first two subparagraphs of this paragraph, and subject to the fourth subparagraph of this paragraph, where a CCP neither has a default fund nor has in place a binding arrangement with its clearing members that allows it to use all or part of the initial margin received from its clearing members as if they were pre-funded contributions, the information it is to report in accordance with Article 50c(1) shall include the total amount of initial margin it has received from its clearing members.
The deadlines referred to in the first and second subparagraphs of this paragraph may be extended by six months in accordance with a Commission implementing act adopted pursuant to Article 497(3) of Regulation (EU) No 575/2013.’ .
FINAL PROVISIONS
Article 521 Entry into force and date of application
1. This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union . 2. This Regulation shall apply from 1 January 2014, with the exception of: (a) Article 8(3), Article 21 and Article 451(1), which shall apply from 1 January 2015; (b) Article 413(1), which shall apply from 1 January 2016; (c) the provisions of this Regulation that require the ESAs to submit to the Commission draft technical standards and the provisions of this Regulation that empower the Commission to adopt delegated acts or implementing acts, which shall apply from 28 June 2013. This Regulation shall be binding in its entirety and directly applicable in all Member States.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Regulation (EU) No 64 8 /2012 1 (the European Market Infrastructure Regulation or “EMIR”) regulates derivatives transactions, including measures to limit their risks through clearing in central counterparties (CCPs). 2 CCPs take on the risks faced by the parties to a trade, becoming the buyer to every seller and the seller to every buyer. By doing so, they increase market transparency and efficiency and reduce the risks in financial markets, especially for derivatives . EMIR was adopted in the wake of the 2008/2009 financial crisis to promote financial stability and to make markets more transparent, more standardised, and thus safer. EMIR requires that derivatives transactions are reported to ensure market transparency for regulators and supervisors and that their risks are appropriately mitigated through central clearing at a CCP or by exchanging collateral, known as ‘margin’, in bilateral transactions. CCPs, and the risks they manage, have grown considerably since the adoption of EMIR. In 2017, the Commission published two legislative proposals amending EMIR, both of which were adopted by the co-legislators in 2019. EMIR REFIT 3 recalibrated some of the requirements under EMIR to ensure their proportionality, while ensuring financial stability. Acknowledging the emerging issues related to the increasing concentration of risks in CCPs, in particular third-country CCPs, EMIR 2.2 4 revised the supervisory framework and set out a process for assessing the systemic nature of third-country CCPs by the European Securities and Markets Authority (ESMA) in cooperation with the European Systemic Risk Board (ESRB) and the central banks of issue. EMIR is complemented by the CCP Recovery and Resolution Regulation 5 , adopted in 2020, 6 to prepare for the unlikely – though massively impactful - event that an EU CCP faces severe financial distress. 7 Whilst EMIR has established a robust framework for central clearing, certain areas of the current supervisory framework have proven overly complex. This limits EU CCPs’ ability to attract business both within the EU and internationally. The supervisory approval procedures for launching new clearing services and activities by EU CCPs, as well as changes in their risk models, are in many cases unnecessarily long and burdensome. The current rules are there to ensure the safety and soundness of EU CCPs, but this could be done in many ways and the existing processes have been challenged as too slow and, at times, disproportionate in light of the envisaged change. It should not take years for approving a new product, and changes to risk models need to be swift to reflect changing market and economic circumstances. Delays in approvals increase costs and reduce the attractiveness of EU CCPs, and consequently of the EU as a place to do business. The proposal aims at mitigating these obstacles in order to foster modern and competitive CCPs in the EU that can attract business. EMIR provides a comprehensive and robust prudential framework for CCPs and the newly adopted CCP Recovery and Resolution Regulation further strengthens the soundness of EU CCPs. This proposal aims for the EU to continue to base the evolution of its central clearing ecosystem on the strength of its rules and supervision. Robust and safe CCPs enhance the trust of the financial system and crucially support the liquidity of key markets. A safe, robust and resilient clearing ecosystem is a pre-condition for it to grow further. The EU central clearing ecosystem should enable EU firms to hedge their risks efficiently and safely, while at the same time safeguarding the wider financial stability. In this way, central clearing will support the EU economy. This proposal aims to put firms in a better position by being able to predict the liquidity needs associated with central clearing. A competitive and efficient EU clearing ecosystem will increase central clearing activities, but central clearing also entails risks by centralising transactions in a few CCPs being financially systemically important. Hence, those risks must be appropriately managed by CCPs and CCPs must continue to be thoroughly supervised both at the national and the wider EU level. Therefore, this proposal aims at ensuring a robust and joined-up supervision, building on the supervisory system the EU currently has in place. In addition, since 2017, concerns have been repeatedly expressed about the ongoing risks to the EU financial stability arising from the excessive concentration of clearing in some third-country CCPs, notably in a stress scenario. H igh-risk but low-probability events can happen, and the EU must be prepared to face them 8 . While EU CCPs have generally proven resilient, experience has shown that the EU clearing ecosystem can be made stronger, to the benefit of financial stability. However, open strategic autonomy also means that the EU needs to safeguard itself against the financial stability risks which can arise when EU market participants are excessively reliant on third-country entities, as this can be a source of vulnerabilit y . Therefore, this proposal aims at making the equivalence framework in EMIR more proportionate and to better tailor cooperation with foreign supervisors taking into account the risks posed by CCPs based in third countries – and without compromising on the need for third countries to have sound rules in place . It is also proposed that the equivalence procedure is made simpler when the risks involved in central clearing in a third country are particularly low. In addition, this proposal seeks to build up the EU’s central clearing capacity and thereby increase liquidity at EU CCPs with the aim to reduce the risks posed to the EU financial stability by excessive exposures to third-country CCPs. Therefore, this proposal requires all market participants subject to a clearing obligation, to hold active accounts at EU CCPs for clearing products that have been identified by ESMA as of substantial systemic importance for the EU financial stability. T his proposal is complemented by a proposal for a Directive introducing a limited number of changes to Directive 2013/36/EU 9 (Capital Requirements Directive or ‘CRD’), Directive (EU) 2019/2034 10 (Investment Firms Directive or ‘IFD’) and Directive 2009/65/EU 11 (Undertakings for Collective Investment in Transferable Securities Directive or ‘UCITS Directive’) as regards the treatment of concentration risk towards CCPs and the counterparty risk on centrally cleared derivative transactions. These amendments are necessary to ensure that the objectives of this EMIR review are achieved as well as to assure coherence. The two proposals should therefore be read in conjunction.
Revised version (Article 521 Entry into force and date of application):
1. This Regulation shall enter into force on the day following that of its publication in the Official Journal of the European Union .