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Derivatives EMIR for non-financial counterparties

EMIR for non-financial counterparties

Published on January 30, 2015

All non-financial counterparties trading in derivatives are subject to EMIR. However, the regulation lays down less stringent obligations for non-financial counterparties trading in derivatives solely for hedging purposes, or, at the very least, those whose trading in derivatives other than for hedging purposes falls below a threshold known as the clearing threshold.

Under EMIR, non-financial counterparties must:
• report derivative contracts to a trade repository
• clear derivative contracts that are subject to the clearing obligation, but only where their positions exceed the mandatory clearing threshold
• apply risk mitigation techniques to their OTC derivative contracts up to the clearing threshold or, where that threshold is exceeded, apply such techniques to OTC derivative contracts not cleared by a CCP.
 

Information on the mandatory clearing threshold

Since 15 March 2013, non-financial counterparties have been required to inform the AMF and ESMA on the same day whenever positions entered into in OTC derivative contracts exceed one of the clearing thresholds defined for each asset class:

Asset class Threshold (notional value)
Credit derivatives €1 billion
Equity derivatives €1 billion
Interest rate derivatives €3 billion
Foreign exchange derivatives €3 billion
Commodity derivatives and other derivatives €3 billion

 Forms used by non-financial counterparties to notify when they exceed and subsequently fall below the clearing threshold can be accessed at the end of this document. They should be sent to the following address: emir-notifications@amf-france.org.

Only those positions that do not reduce the risk arising from commercial activity or treasury financing activity must be included in the calculation, which should be applied at aggregate level to the group to which the counterparty belongs.

Whenever a non-financial counterparty’s rolling average position over 30 working days exceeds one of the thresholds set out in the table above, that counterparty will need to clear all derivatives subject to the clearing obligation.

As soon as this rolling average position no longer exceeds a threshold, the non-financial counterparty is no longer subject to the clearing obligation. In the same way as when they exceed a threshold, non-financial counterparties must notify the AMF and ESMA on the same day whenever they fall below a clearing threshold.
 

Intra-group transactions (for counterparties above a clearing threshold)

Non-financial counterparties may be exempt from the clearing obligation or the collateral requirement for OTC derivative contracts entered into within their group, as long as certain criteria are met. These criteria are set out in the “Notifications and exemptions” section.
 

Summary of obligations upon non-financial counterparties by size of positions 

Size of positions Central clearing obligation Confirmation, dispute resolution, reconciliation and compression Daily marking to market Exchange of collateral Capital requirements Reporting to TRs
< clearing thresholds No Yes No No No Yes
> clearing thresholds Yes Yes Yes Yes No Yes

 

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Contact: Communication Directorate – Autorité des marches financiers 17 place de la Bourse – 75082 Paris cedex 02