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ESMA Consults on Non-EU Counterparties Under EMIR

Following its February 2012 discussion paper, on 17 July 2013, the European Securities and Markets Authority (ESMA) published a consultation paper on draft regulatory technical standards (RTS) required by EMIR on OTC derivative transactions executed by non-EU counterparties having a direct, substantial and foreseeable effect within the EU.

The Consultation Paper details the circumstances under which EMIR’s clearing and risk mitigation obligations would apply to OTC derivatives transactions which have a direct, substantial and foreseeable effect in the EU and are entered into by two non-EU counterparties.  The proposed RTS would only apply where:

  • two counterparties to the same transaction are established outside the EU;
  • their jurisdictions’ rules are not considered equivalent to EMIR, and
  • either:
    • one of the two non-EU counterparties is guaranteed by an EU financial counterparty for at least €8bn of gross notional amount of OTC derivatives entered into and for an amount of at least 5% of the OTC derivatives exposures of the EU financial counterparty; or
    • the two non-EU counterparties execute their transactions via their EU branches.

The draft RTS also include provisions the purpose of which is to prevent the evasion of EMIR requirements, including cases where derivatives contracts between non-EU counterparties are concluded without any business substance or economic justification, and in a way to evade the clearing obligation and risk mitigation provisions.

The consultation closes on 16 September 2013 and the EU Commission is scheduled to receive the draft RTS from ESMA by 25 September 2013

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