ESMA Updates EMIR Q&As
On 6 June 2013, the European Securities and Markets Authority (ESMA) published an updated set of questions and answers (Q&As) on EMIR implementation, a follow-up to the original version published on 20 March 2013. The Q&As complement those already published by the EU Commission, first in November 2012 and updated in February 2013. The link to the ESMA website isn’t currently working, but a .pdf of the Q&As can be found via the OTC Space website.
Whilst primarily aimed at competent authorities, the Q&As also provide clarity to market participants. Indeed, they should be regarded as required reading for all potential EMIR counterparties, providing important guidance on key elements of EMIR such as:
- EMIR classifications: Financial counterparties are not responsible for assessing the EMIR classification (i.e. NFC+ or NFC-) of their clients, but are expected to obtain status representations from their NFC counterparties. Moreover, Financial Counterparties are not expected to actually verify the accuracy of EMIR status representations and are entitled to rely on them unless in possession of information which clearly demonstrates that they are incorrect.
- Timely confirmations: it is not sufficient merely to send a confirmation within the applicable deadline. Rather, confirmations must actually be signed/matched within this period. Moreover, both parties must agree in advance on a specific process to confirm transactions, although negative affirmation processes are permitted, provided that both parties have agreed on this in advance as a way of confirming transactions. 
- The hedging exemption: proxy, portfolio and macro hedging can all qualify as “hedging” for the purposes of calculating EMIR clearing thresholds, even if they might not qualify as “hedging” for the purposes of International Financial Reporting Standards.
- Segregation and portability: while CCPs are permitted to offer other levels of protection in addition to individual client segregation and omnibus client segregation (e.g. omnibus gross margin segregation), omnibus client segregation is the minimum level of client protection permissible under EMIR. In other words, unsegregated accounts will not be EMIR compliant.