Trade bodies take first step in easing EMIR implementation
A new EU regulatory
implementation handbook will be unveiled next week, initially helping firms comply with the European market infrastructure regulation (EMIR), Europe’s new
framework for swaps trading.
“We expect to
have the first stage of the handbook available online from next week,” Anthony
Belchambers, CEO of the Futures and Options Association (FOA), told
theTRADEnews.com. “As well as the high level requirements for EMIR, it will
also tackle the associated draft technical standards. Our aim is to make this complex area of regulatory change as navigable
as possible among the different firms represented by each association.”
In addition to
the FOA, the European Federation of Energy Traders, the Wholesale Markets
Brokers’ Association and the Association of Private
Client Investment Managers and Stockbrokers are also involved in the handbook’s
creation. The trade associations have also enlisted the help of global law firm
Clifford Chance, which will play a core role in the handbook’s development, and
audit and tax advisory firm KPMG, which will cover operational issues.
As well as EMIR, the handbook
will also cover MiFID II, the Market Abuse Directive (MAD) and the market
integrity rules in the Regulation on Energy Market Integrity and Transparency,
including supporting guidance and technical standards developed by the
European Securities and Markets Authority (ESMA) and the Agency for the
Cooperation of Energy Regulators.
Where possible, EMIR
will standardise derivatives products so they can be traded on
exchange and be centrally cleared. But this requires substantial changes to business practices and workflow across
buy-side firms, investment banks and market infrastructure providers. Belchambers
added that the associations were also mulling producing an annex for Dodd-Frank, the US approach to OTC derivatives reform.
II and its accompanying regulation provides the framework for OTC derivatives trading venues – called organised
trading facilities – and will increase transparency obligations across a number
of asset classes, including fixed income, while MAD will place stricter
punishments on those found guilty of market abuse.
Included within the handbook’s scope will be issues
related to wholesale and retail products and services, ranging from trading in
cash equities to FX and commodity derivatives, implementation checklists and
guidance, and standard disclosure documents to help meet the new rules. It will
also be supported by a series of workshops – the first of which will be held in
September and October this year – that will cover high-level regulatory issues
and include heat-maps that will guide firms on the early steps they are able to take
In helping the industry to further prepare for the
introduction of EMIR, ESMA is holding a public hearing in Paris today as part of the establishment
of technical standards that will accompany the regulation.
The hearing closely follows a consultation paper on
the technical standards released on 25 June, which presents draft proposals on deciding when swaps should be deemed eligible
for clearing, risk mitigation requirements for OTC derivatives that are not
centrally cleared, and organisational conduct of business and prudential
requirements for central counterparties (CCPs).
Belchambers, who will be attending today’s meeting,
said he is encouraged at the way the securities watchdog has used industry
feedback thus far.
“ESMA has picked up on comments from the industry,
which is a positive sign, and is also cognisant that this needs to go further,
which includes soliciting more buy-side feedback,” he said. “It is also encouraging
that the cost burden of clearing swaps has been recognised throughout the ESMA
consultation paper, but there is still an awful lot of detail to work though.”
Belchambers believed the new OTC derivatives regulations would lead to
a tipping point, where institutional investors decide not to hedge certain risks with OTC
derivatives because of the greater costs associated with clearing.
“There has to a balance in achieving policy objectives
and ensuring that the associated cost aren’t so high that they undermine the
objectives,” he said.