The final draft regulatory technical standards (RTS) for the European Market Infrastructure Regulation (EMIR) have been published by the European Supervisory Authorities, a group consisting of the EBA, EIOPA and ESMA.

ESA's joint committee announced the publication of the draft standards, which cover the risk mitigation techniques related to the exchange of collateral to cover exposures arising from non-centrally cleared over-the-counter (OTC) derivatives. The RTS also “specify the criteria concerning intragroup exemptions and the definitions of practical and legal impediments to the prompt transfer of funds between counterparties”.

In particular, the draft standards cover the following points:

• For OTC derivatives not cleared by a central counterparty (CCP), the draft RTS prescribe that counterparties have to exchange both initial and variation margins. This will reduce counterparty credit risk, mitigate any potential systemic risk and ensure alignment with international standards.
• The draft RTS outline the list of eligible collateral for the exchange of margins, the criteria to ensure the collateral is sufficiently diversified and not subject to wrong-way risk, as well as the methods to determine appropriate collateral haircuts.
• The draft RTS lay down the operational procedures related to documentation, legal assessments of the enforceability of the agreements and the timing of the collateral exchange.
• The draft RTS cover the procedures for counterparties and competent authorities related to the treatment of intragroup derivative contracts.
• The RTS will be applied in a proportionate manner to allow counterparties to phase in the requirements.

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CTMFile take: EMIR has been called a 'bonkers' regulation and its passage has been far from smooth. Are we now seeing this regulation coming together, a mere four years after it first entered into force?