ISDA and FIA Europe Submit Joint Response to ESMA Consultation Paper on EMIR Clearing Obligation

ISDA and the Futures Industry Association of Europe ("FIA Europe") submitted a joint response to ESMA regarding the questions listed in its consultation paper that seeks views on the regulatory technical standards that ESMA is required to draft pursuant to the Clearing Obligation Procedure set out in Article 5 of EMIR. This consultation, which relates to the clearing of interest rate derivatives, is the first of two ESMA consultations on asset classes that are subject to the EMIR clearing obligation. The period for the second consultation, which is on credit default swaps, closes on September 18, 2014.

According to the joint response paper, ISDA and FIA Europe (collectively, "Agencies") strongly support the overarching goal of reducing systemic risk in the OTC derivatives market by introducing an obligation to clear certain classes of OTC derivatives with central counterparties that have been authorized or recognized in accordance with EMIR.

The Agencies stated, however, that they have significant concerns about some aspects of the draft regulatory technical standards, including (i) the phase-in periods and frontloading, (ii) the identification of contracts subject to the clearing obligation, (iii) counterparty categorization, and (iv) the treatment of third-country entities.