The different approaches to the interpretation of MiFID I across Member States mean that there is no commonly-adopted application of the definition of derivative or derivative contract in the EU for some asset classes. Whilst this issue has in the past been noted as a concern since the implementation of MiFID, the practical consequences have come to the forefront with the implementation of the European Markets Infrastructure Regulation (EMIR).

What exactly is a derivative?  That’s precisely what the European Securities and Markets Authority (ESMA) wants to pin down with it’s latest consultation draft.  Why do they care?  Because ESMA is worried that inconsistent application of the definitions of derivative instruments could have a significant detrimental effect on the consistent application of European Market Infrastructure Regulation (EMIR). According to ESMA, it is imperative that references to the these derivatives definitions be clarified to ensure that regulatory authorities are all taking a common approach to setting reporting and clearing obligations in Europe.