Risk Magazine is reporting that ESMA is to publish guidance on the EMIR frontloading requirement “within weeks”.
The frontloading requirement is triggered by the authorisation of a CCP under EMIR (of which there are now four). If ESMA concludes that any of the products offered by that CCP are suitable for mandatory clearing, the frontloading requirement demands that all trades executed since the authorisation of the CCP (and not just the decision regarding suitability) be subject to mandatory clearing requirements.
However, only transactions with a minimum maturity remaining will be subject to the frontloading requirement. Indications are that ESMA, with the support of the EU Parliament, will set the level of this maturity sufficiently high, possibly up to 30 years, so as to ensure that, in practice, very few (if any) derivatives transactions are subject to the frontloading requirement. This will come as a relief to many in the industry, concerned that the differences in capital and margin profile between cleared and non-cleared trades makes the pricing of transactions which are subject to the frontloading requirement very difficult.