Saturday, March 3, 2012

ESMA Issues Consultation Draft on Regulation of OTC Derivatives, CCPs and Trade Repositories


Author: David Schwartz J.D. CPA David Schwartz J.D. CPA

The European Securities and Markets Authority has issued a discussion draft on proposed regulation of  OTC Derivatives, CCPs and trade repositories.  The draft introduces provisions to improve transparency and reduce the risks associated with the OTC derivatives market and establishes common rules for central counterparties and for trade repositories.

The discussion paper follows the structure of the European Market Infrastructure Regulation proposal (EMIR) published in 2010, with the first section focusing on OTC derivatives and in particular the clearing obligation, risk mitigation techniques for contracts not cleared by a CCP and exemptions to certain requirements. The second part focuses on CCP requirements, where a number of provisions need to be specified through technical standards. The third part deals with trade repositories and in particular the content and format of the information to be reported to trade repositories, the content of the application for registration to ESMA and the information to be made available to the relevant authorities.


ESMA is organizing a public hearing on March 6 , 2012 to give an opportunity to interested stakeholders to express their preliminary views and to  get early feedback.  Registration for the public hearing is available online via http://www.esma.europa.eu/hearings/overview/10.  Comments on the paper are due by March 19.

As a follow up to this discussion paper, using the comments received, ESMA will prepare draft technical standards to be included in the consultation paper which will most likely be published around summer 2012.

EBA, EIOPA and ESMA are also expected to issue in the coming weeks a joint discussion paper on regulatory technical standards they are required to draft in concert. This joint discussion paper will cover risk mitigation techniques for OTC derivatives that are not cleared by a CCP, notably on capital requirements and exchange of collateral to cover the exposures arising from those transactions and on operational processes for the exchange of collateral, minimum transfer amount and intra-group exemptions.  EBA is also expected to issue in the coming weeks a discussion paper on draft regulatory technical standards on capital requirements for CCPs.
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