The European Commission (EC) has adopted a Delegated Regulation that makes it mandatory for certain over-the-counter (OTC) interest-rate derivative contracts to be cleared through central counterparties. This will implement the clearing obligation under the European Market Infrastructure Regulation (EMIR).

The regulation covers interest-rate swaps denominated in euro, sterling, yen and US dollar that have specific features, including the index used as a reference for the derivative, its maturity, and the notional type (i.e. the nominal or face amount that is used to calculate payments made on the derivative).

The contracts affected are:

• fixed-to-float interest-rate swaps (IRS), known as 'plain vanilla' interest rate derivatives;
• float-to-float swaps, known as 'basis swaps';
• forward rate agreements; and
• overnight index swaps.

“This is a significant step to implement our G20 commitments, strengthen financial stability and boost market confidence. This is also part of our move towards markets that are fair, open and transparent,” said Jonathan Hill, EU commissioner for Financial Stability, Financial Services and Capital Markets Union.

The regulation will enter into force subject to scrutiny by the European Parliament and Council of the EU and will be phased in over three years.

Interest-rate derivatives make up around 80% of all global derivatives as of December 2014. The estimated daily turnover in the EU of OTC interest rate derivative contracts denominated in G4 currencies was over €1.5 trillion as of April 2013.

The text of the regulation and its associated press release can be found here.