Here are 10 questions that you should know if you are based in the European Economic Area and trade in derivatives, whether on-exchange or “over-the-counter” (OTC), then you will be impacted by EMIR. This could include real estate investors who use derivatives and swaps (e.g. hedging interest rate and currency risks) to reduce risk rather than for speculative purposes. The exact impact of EMIR will depend on the type of firm, as well as the level and type of derivative exposure of the particular firm.
- Should I care about EMIR? (I should hope so)
- What are the requirements under EMIR? Continue reading “10 Things you should know about EMIR – European Market Infrastructure Regulation”
The key protection which CCPs have against counterparty credit risk is their default waterfall. They take margin from clearing members and their clients, and default fund contributions from clearing members, and use these amounts as a bulwark against losses should a clearing member default.
The different levels in the default waterfall – margin, CCP equity, default fund, default fund assessment rights, and so on – are accessed in sequence, much like the tranches of a CDO. Typically the defaulter’s margin and default fund are used first, then an amount of CCP equity is at risk, then the mutual default is used, and typically more default fund can then be called from surviving members. That is, the default waterfall starts off individual, with the defaulter (or rather their estate) paying, and then becomes mutual. Continue reading “CCP and the waterfall”
“Regulation as such would not be a problem, if only one knew how it looks like“. This is a claim often heard by asset managers.
There has been published a lot of literature, news and considerations around EMIR in the past months. EMIR applies its obligations to “financial institutions”, including investment firms, Undertakings for Collective Investments in Transferable Securities (“UCITS”) funds and their managers, and entities that will be authorized under the Alternative Investment Funds Managers Directive (“AIFMD”), who trade in “eligible derivatives contracts” such as options, futures, swaps, and contracts for differences. Continue reading “Asset Manager Challenges under EMIR”
Have done a series of post on the US regulations Dodd Frank time now to share some thoughts on the EUROPE region.
The “European Market Infrastructure Regulation,” known as EMIR, was adopted on July 4, 2012, as the Regulation on OTC Derivatives, Central Counterparties and Trade Repositories (EU 648/2012), and took effect in all EU Member States on August 16, 2012. As an EU Regulation, EMIR is effective in EU Member States without the need for national regulations or legislation.
The EMIR regulatory framework is made up of Regulation EU 648/2012 (the “Regulation”) and several European Commission Implementing Regulations and Delegated Regulations which set out technical standards addressing matters of detail under the Regulation. The Implementing Regulations and Delegated Regulations were published in the Official Journal of the European Union on February 23, 2013, and became effective on March 15, 2013. Continue reading “OTC Derivatives Regulations – Focus Europe”