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ESMA publishes final version of standards for derivatives and Central Counterparties and Francois Ma

The European Securities and Markets Authority (ESMA) has today published its technical standards on the Regulation on OTC derivatives, central counterparties and trade repositories (EMIR), which set out the specific details of how EMIR's requirements are to be implemented.

The EMIR framework aims to improve the functioning of OTC derivatives markets in the European Union (EU), by reducing risks via the use of central clearing and risk mitigation techniques, increasing transparency via trade repositories, and ensuring sound and resilient central counter-parties (CCPs).

Steven Maijoor, ESMA Chair, said presenting their report:
"The publication of ESMA's standards on EMIR sees the EU taking its final steps towards meeting the G20 commitment on bringing OTC derivatives trading under supervision, and provides clarity to the market on the shape of the new regime. The new regulatory framework reduces the risks arising from OTC derivatives trading by improving transparency in the sector and ensuring resilient central counterparties.“

"The implementation of this regime enables the EU to play its role in strengthening the global financial system through promoting stable and well-functioning financial markets, ensuring a level playing field for market participants and enhancing investor protection."

New EU regulatory framework
ESMA's standards on EMIR set out in detail the new regulatory framework for derivatives in the EU.

One objective of this framework was to provide "Increased transparency and supervision will be achieved by defining the details of derivatives transactions that need to be reported to trade repositories, including the information to be provided to ESMA for the authorisation and supervision of trade repositories and the data to be made available to relevant authorities and the public."

Francois Masquelier and Damien Gillespie at Eurofinance
At the same time as the ESMA were publishing their final version of the standards for OTC derivatives and central counter-parties RTL's Francois Masquelier and Clearstream Banking's Damien Gillespie had the horrendously difficult task of explaining the options open to the corporate treasurers from the emerging FX regulations.

After presenting a clear picture on the current position, Francois and Damien reviewed the options. Their conclusion was that, although it will take time for everyone to work out exactly what the new regulations will mean for corporates, it is clear that:

  • there may be some advantages from, e.g. although it will not be mandatory for corporate to centrally clear OTC, the market dynamics may make this attractive in the future with possibly lower execution spreads and reduced counterparty risk
  • there could be a significant increase in capital cost for non-cleared OTC contracts under Basel III
  • there is a large number of potential actions by the corporate treasurer including:
    • cease to hedge/hedge less
    • make greater use of natural hedges
    • greater use of purchased options (e.g. caps, swap swaptions)
    • use pay-as-you-go structure (e.g. inflation swaps)
  • there will be several Trade Repositorys for derivatives including ClearStream.

However, a lot is still very unclear.


If the session at Eurofinance's Conference last week is anything to go by, many people in corporate treasury including bankers don't really understand the implications of these new standards (or even that they will impact them) and that they will implemented by July 2013!! How will corporate treasurers react is unclear. One thing is for sure: there is real potential for this adding to the financial crisis in Europe rather than alleviating it.

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