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.
EU lawmakers agreed to new legislation on how EU and third-country clearinghouses should be supervised in the future. CFTC Chair J. Christopher Giancarlo weighed in re-raising concerns about implementation.
ISDA, SIFMA, SIFMA AMG and the Association of the Luxembourg Fund Industry called on regulators to make changes to uncleared derivatives margin requirements under the European Market Infrastructure Regulation.
ISDA recommended best practices for European Market Infrastructure Regulation trade reporting.