ESMA Publishes Two Consultation Papers Regarding Clearing Under EMIR
Commentary by Bob Zwirb
The European Securities and Markets Authority ("ESMA") published two separate consultation papers seeking comment on draft regulatory technical standards ("RTS") for the clearing of Interest Rate Swaps ("IRS") and Credit Default Swaps ("CDS") under the European Market Infrastructure Regulation ("EMIR"). The papers provide explanations on the draft regulatory technical standards establishing a clearing obligation on certain interest rate and OTC derivative classes. They also seek input from stakeholders to help ESMA in finalizing technical standards to be drafted and submitted to the European Commission for endorsement in the form of Commission Regulations, i.e. a legally binding instrument directly applicable in all Member States of the European Union.
With regards to IRS, ESMA explained that it is proposing an obligation to clear certain classes of OTC derivatives in central counterparties ("CCPs") that have been authorized or recognized under its framework. Specifically, ESMA defined the IRS classes to be subject to central clearing following an analysis of all IRS classes which are currently offered for clearing by European CCPs. ESMA's draft RTS proposes to subject the following four classes: (i) basis swaps, (ii) fixed-to-float interest rate swaps, (iii) forward rate agreements, and (iv) overnight index swaps on a range of currencies and maturities. Comments on the IRS consultation paper are due on August 18, 2014.
Following this proposed definition of IRS, EMSA defined the CDS classes to be subject to the clearing obligation based on the analysis of all CDS classes which are currently offered for clearing by European CCPs. ESMA's draft RTS proposes to subject untranched European Index CDS (for two indices) to central clearing. Comments on the CDS consultation paper must be submitted by September 18, 2014.
See: ESMA IRS Consultation Paper; Response Form to the IRS Consultation Paper; ESMA CDS Consultation Paper; Response Form to the CDS Consultation Paper.
Commentary
One interesting, indeed refreshing aspect of this exercise is the regulator's emphasis on commenters providing input on costs and benefits in their response, an input that ESMA characterizes as an "essential element" to its rulemaking process:
"One essential element in the development of draft technical standards is the analysis of the costs and benefits that those legal provisions will imply. Input in this respect and any supportive data will be highly appreciated and kept confidential where required."