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Attorneys Analyze Amendments to European Counterparties Trading Derivatives Obligations's picture
Commentary by Nick Shiren

Cadwalader attorneys analyzed recently adopted amendments to European counterparties trading derivatives obligations under the European Market Infrastructure Regulation ("EMIR Refit"). EMIR Refit will become fully effective on June 17, 2019.

As described more extensively in a Cadwalader memorandum, key changes resulting from EMIR Refit include:

  • expanding the definition of "financial counterparty" ("FC") to include all alternative investment funds ("AIFs") that were either (i) established in the European Economic Area or (ii) whose investment managers are authorized or registered under Directive 2011/61/EU on Alternative Investment Fund Managers;

  • establishing clearing thresholds for FCs that will be the same as the current non-financial counterparties ("NFCs") clearing threshold but will (i) exclude hedging transactions from the threshold calculations and (ii) allow all OTC derivatives to become clearable once the threshold under one asset class is exceeded;

  • extending the requirement to exchange margin with respect to uncleared OTC derivatives to all FCs, regardless of whether the clearing threshold has been exceeded;

  • transferring all responsibility to report trades to authorized trade repositories to FCs (or the managers, in the case of an EU AIF);

  • requiring central counterparties ("CCPs") to provide clearing members with (i) tools to simulate their initial margin requirements and (ii) an overview of the initial margin model used by the CCP;

  • implementing new or amended notifications relating to derivatives that must be submitted to the Financial Conduct Authority concerning FCs and NFCs clearing; and

  • establishing a new reporting exemption notification for certain intragroup OTC derivatives with an NFC.

Additionally, the EMIR Refit highlights the need to restrict the mandatory exchange of variation margins on physically settled FX forwards and swaps to transactions between the most systemic counterparties. However, it does not introduce a rule to that effect.

The attorneys noted that EMIR Refit will enter into force before the United Kingdom leaves the European Union. As such, UK entities will be subject to the new rules, but it is unclear how they will be treated after Brexit.

This memorandum was authored by Nick Shiren, Assia Damianova and Michael Sholem.


Managers of AIFs should reassess their status and:

  • prepare to notify European Securities and Markets Authority (ESMA) and the relevant national regulator of "small FC" status, if any;

  • assess their compliance with margin and other risk mitigation requirements under EMIR;

  • revisit their counterparty representations in derivatives documentation, especially if the AIF is a third country entity (TCE); and

  • review any guidance or protocols produced by ISDA to address the changes in EMIR Refit.

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