Collateral – what are the impacts of EMIR?

Following the 2007-2008 crisis, the G20 meeting in Pittsburgh in 2009 decided to reform banking and financial regulations. European Regulation n ° 648/2012 on OTC derivatives, central counterparties and central repositories (EMIR), published in the official journal of the European Union on 27 July 2012 and entered into force on 16 August 2012, is the declination of the G20 commitments at the Pittsburgh Summit (September 2009) on derivatives markets. It aims to make the latter safer and more transparent. It was supplemented by technical standards, published in the official journal of the European Union on 23 February 2013 and entered into force on 15 March 2013

EMIR is based on the following principles:

• a central clearing obligation for all OTC derivatives, judged by the ESMA to be sufficiently liquid and standardized. As a result, the counterparty risk will be fully transferred to the clearing houses;
• a harmonised legal framework at European level designed to ensure that clearing houses meet strong requirements in terms of capital, organisation and rules of conduct;
• the use of a set of operational and counterparty risk mitigation techniques for uncompensated contracts;
• a reporting obligation to central repositories of all derivatives transactions. (http://www.amf-france.org/Acteurs-et-produits/Produits-derives/Presentation.html)

EMIR applies to any counterparty, financial (credit institutions, investment firms, insurance companies, management companies,...) or non-financial who carries out a transaction on a derivative product. Exemptions exist for certain categories of actors or transactions, where they take place between two entities belonging to the same group, if certain conditions are verified. The scope of the products covered by EMIR is as follows:

• concerning the obligation to compensate and risk mitigation techniques: any OTC derivative (i.e. any derivative financial instrument within the meaning of the MIFID directive, if its execution does not take place on a regulated market).

• concerning the provisions applicable to central counterparties: any financial instrument. • concerning the Declaration to the central repositories: any derivative contract, both by mutual
traded on a regulated market.