European Market Infrastructure Regulation (EMIR)

The European Market Infrastructure Regulation (EMIR) is a European Union regulation aimed at increasing transparency and reducing systemic risk in over-the-counter (OTC) derivatives markets. It was initially adopted in 2012 and later amended in 2019 with the EMIR Refit regulation.
== Overview ==
EMIR was introduced by the European Union as an implementation of the G20 commitment to reduce systemic, counterparty, and operational risk, and increase transparency in the OTC derivatives market. It was designed as a preventative measure to avoid fallout during possible future financial crises, similar to the collapse that followed the Lehman Brothers bankruptcy in 2008.
The regulations, intended to guard against systemic risk, will require that certain over-the-counter derivatives trades be moved onto transparent trading platforms and be processed through clearing houses. Derivatives trading on multilateral trading facilities such as Turquoise and Nasdaq OMX NLX will be considered over-the-counter trades and will be subject to stricter requirements on margins than trades conducted on an exchange. EMIR also requires members of clearing houses to offer stricter segregation of client assets, and margin will have to be held separately.
The regulation establishes common rules for:
# Central counterparties (CCPs), which interpose themselves between involved parties in a contract to serve as the focal point of each trade
# Trade repositories, which collect and maintain all records of trades
== Key provisions ==
EMIR includes several key provisions:
* Clearing obligation: Standardized OTC derivatives must be cleared through central counterparties.
* Reporting requirement: All derivatives, whether OTC or exchange-traded, must be reported to a trade repository.
* Risk mitigation: For transactions not suitable for central clearing, special risk management requirements must be implemented.
* Counterparty classification: Both financial and non-financial counterparties are classified based on whether their aggregate gross notional volume of OTC derivative transactions exceeds certain thresholds.
Notification requirements: Counterparties must notify relevant authorities (BaFin and ESMA) if they exceed clearing thresholds or if they do not calculate their positions.
== Scope ==
EMIR applies to OTC derivatives, which are defined as derivatives within the meaning of points (4) to (10) of Section C of Annex I to the Markets in Financial Instruments Directive (MiFID) that are not executed on a regulated market. However, the reporting requirement applies to all derivatives within the meaning of MiFID.
== Implementation and enforcement ==
The European Securities and Markets Authority (ESMA) plays a crucial role in the implementation and enforcement of EMIR. ESMA is responsible for:
# Developing technical standards
# Supervising trade repositories
# Granting and withdrawing accreditation for trade repositories
== Ongoing revisions ==
EMIR has undergone revisions since its initial implementation:
# EMIR Refit: Adopted in 2019, this revision aimed to simplify some requirements and increase proportionality.
# Clearing framework review: In 2022, the European Commission launched a targeted consultation on reviewing the central clearing framework in the EU.
# Temporary measures: In response to energy market challenges, the Commission adopted measures on clearing thresholds and collateral eligibility in 2022.
== Impact ==
EMIR has significantly impacted the European derivatives market by:
# Increasing transparency through mandatory reporting
# Reducing counterparty risk through central clearing
# Enhancing risk management practices for non-cleared derivatives
However, the regulation has also increased compliance costs for market participants and has led to some consolidation in the clearing industry.
==History==
Just as the Dodd-Frank Act was enacted in the U.S. in order to improve transparency and accountability in the market after the financial crisis of 2008, the European Commission in 2009 called for the development of a regulatory framework for OTC derivatives. The framework stemmed from commitments made at a G20 meeting in Pittsburgh in September 2009. 
In September 2010, the European Securities and Markets Authority (ESMA) published its EMIR proposal. After several consultations, comment periods and drafts, the final draft of EMIR was submitted to the EC on September 27, 2012. On December 19, 2012, the EC adopted nine regulatory and implementing technical standards, which finalize requirements for the mandatory clearing and reporting of transactions. The regulations will become effective 20 days after appearing in the EU Official Journal. 
In December of 2022, The European Commission proposed amendments to EMIR to make derivatives clearing in the EU more attractive. Among the aims of the new proposals, the EC sought to encourage clearing in the EU by simplifying the procedures for central counterparties (CCPs) when launching new products and changing risk models by introducing a non-objection approval for certain changes that do not increase the risks for the CCP.
==EMIR Highlights==
Major components of EMIR include: 
*a reporting obligation for OTC derivatives; 
*a clearing obligation for eligible OTC derivatives; 
*measures to reduce counterparty credit risk and operational risk for bilaterally cleared OTC derivatives; 
*common rules for central counterparties (CCPs) and for trade repositories; and 
*rules on the establishment of interoperability between CCPs. 
== References ==
Category: MarketsWiki Page of the Day
Category:Regulation
Category:European Regulation