Risk Magazine is reporting that a meeting is due to take place this week between representatives of the European Securities and Market Authority (ESMA) the European Commission (EC) and the European Parliament (EP) regarding the functioning of the EMIR frontloading requirement.
Broadly, EMIR frontloading provisions require firms to clear any derivatives executed in the period between (i) the approval of a central counterparty (CCP) under EMIR, and (ii) the point at which ESMA confirms that the products for which that CCP has been approved should be subject to mandatory clearing. The time lag between these two events can be anything up to 16 months, but the clock started ticking with the authorisation of Nasdaq OMX on 18 March (see this blog post for more detail).
The issue is a concern to the market due to the difficulties in pricing transactions which may be subject to a future clearing requirement. However, the practical impact of frontloading can be mitigated by raising the maturity threshold of trades which are to be subject to the frontloading requirement with the result that, at the point at which a decision regarding mandatory clearing is made, only trades with a remaining maturity greater than the threshold would have to be transitioned from the bilateral to the cleared world.
Rumours appear to be circulating that the maturity threshold will indeed be raised – some think as high as to 30 years – effectively consigning frontloading as an issue to the bin. Others are not so sure. Either way, clarity on the issue should be forthcoming in the very near future.Contact Us