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Frontloading finalised

ESMA have published a letter received yesterday from the EC’s Director General Jonathan Faull, clarifying desired changes to the Clearing RTS. Controversial , and probably unworkable, frontloading obligations will no longer be “backdated”. The letter proposes that frontloading should begin two months after the publication of the RTS for Category 1 clients, and five months after publication for those in Category 2[1]. This equates to a likely frontloading start date of April 2015 for clearing members and July 2015 for financial counterparties who exceed the EUR 8bn notional threshold. The Category 2 start date postponement is accompanied by a change in the period for calculation of threshold amounts, now three months following RTS publication. The letter also calls for the inclusion in the RTS of a recital clarifying that in respect of investment funds, the threshold should be calculated per single fund rather than at the group level, provided that the funds are legally and financially separate.

The extra five months and 21 days grace may be the best Christmas present Category 2 firms could have wished for. With many firms yet to begin the time-consuming process of clearing agreement negotiation, many would have been forced to take dictation of unilateral terms by clearing members. The postponement of the threshold calculation date acts to remove mid-tier firms from the Catch 22 prospect of pricing swaps with uncertainty as to their cleared\uncleared status.  The proposals are of less benefit for Category 1 clearing member firms, however the letter does clarify the application of the EMIR Article 4.2(b)  exemption; confirming the exclusion from the clearing obligation of intragroup, cross-border transactions pending equivalency decisions. The letter draws the long-running frontloading farce to a close; it is to be hoped that this very-late 2014 outbreak of regulatory rationality continues into the New Year.


[1] Category 3– firms whose Gross Notional Outstandings fall below the EUR 8bn threshold remain effectively excluded from the frontloading obligation

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