On 14 February 200 the European Securities and Market Authority (ESMA) sent a letter to Michel Barnier, Commissioner for Internal Market and Services at the EU Commission regarding the classification of financial instruments as derivatives for the purposes of reporting under EMIR.
The definition of “derivative” or “derivative contract” drives a number of EMIR requirements, including calculation of the clearing threshold, applicability of risk mitigation techniques and margin requirements. The terms themselves are as defined in Annex I of the MiFID Directive. ESMA is concerned because the different transpositions of MiFID across EU Member States mean that there is no single, commonly adopted definition of either term. This is particularly the case with respect to FX forwards and physically settled commodity forwards. Accordingly, ESMA has invited the EU Commission “as a matter of urgency” to adopt an implementing act to clarify these definitions, specifically:
- The definition of currency derivatives, specifically when such a contract:
- is to be regarded as “spot” as opposed to “forward”; and
- can be regarded as having been conclusion for commercial purposes; and
- The definition of commodity forwards that can be physically settled.
 Directive 2004/39/EC