ESMA launches key derivatives consultation

The European Securities and Markets Authority (ESMA), the watchdog responsible for the region’s securities markets, has kicked off consultations for developing the technical standards for new derivatives and short-selling regulations.

The derivatives consultation followed the finalisation of the high-level rules of the European market infrastructure regulation (EMIR) by the European Parliament and the Council of the European Union on 9 February.

ESMA’s consultation on EMIR is split into three parts. The first covers the clearing obligation for derivatives currently traded over-the-counter and the risk mitigation required for contracts that are not eligible for central clearing.

OTC derivatives will be considered for clearing if they have a “direct, substantial and foreseeable effect within the EU”.

At the first stage, central counterparties (CCPs) will need authorisation from their local regulator to clear a class of OTC derivatives. The local authority will then have to notify ESMA.

ESMA said it may then adopt a more granular approach within the classes of derivatives identified by CCPs.

For those swaps that are deemed unsuitable for clearing, ESMA has asked for feedback on issues including the timing of trade confirmations and portfolio reconciliation frequency.

In the second section of the consultation, ESMA has considered standards for CCPs, which are based on the draft principles for market infrastructure defined by the Committee on Payment and Settlement Systems and the International Organisation of Securities Commissions. These include CCP recognition, organisational requirements and record keeping.

The third part of the consultation has focused on trade repositories and how information should be reported.

The deadline for responses to the consultation is 19 March. Before this deadline, ESMA will also organise a public hearing, giving all stakeholders the opportunity to air their views.

ESMA, along with the two other European supervisory authorities – the European Banking Association (EBA) and the European Insurance and Occupational Pensions Authority – will issue a further consultation on the rules they are required to jointly draft. This will cover risk mitigation techniques for OTC derivatives that are not cleared by a CCP, specifically capital requirements and exchange of collateral to cover the exposures arising from those transactions and on operational processes for the exchange of collateral. The EBA will also issue another paper on draft regulatory technical standards on capital requirements for CCPs.

Short-selling rules 

The EMIR consultation has followed another ESMA paper earlier this week that consulted on the delegated acts for short-selling regulation and aspects related to credit default swaps.

The paper asked for feedback on how credit default swaps should be used, thresholds for reporting net short sales, thresholds for restrictions on short selling of public debt and the handling of adverse events.

The short-selling and CDS consultation will run until 9 March, with a final report on the delegated acts scheduled for publication by mid-April.

Anish Puaar +44 (0)20 7397 3817 anish.puaar@thetrade.ltd.uk

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