The anniversary date for financial counterparties (FC) to conduct the ‘clearing obligation assessment’ is approaching. The clearing obligation assessment determines whether an FC is considered a Small FC (SFC) under EMIR Refit/UK EMIR Refit.
What are the categories of FCs?
|Categories of FCs||What does it stand for?|
|FC+*||FC subject to clearing obligation|
|SFC||FC not subject to clearing obligation|
*An FC+ is an FC conducting large volumes of derivative trading activity.
What’s the clearing threshold?
The threshold is different for each asset class as per the following the table:
|Credit derivative contracts||EUR 1 billion|
|Equity derivative contracts||EUR 1 billion|
|Interest rate derivative contracts||EUR 3 billion|
|Foreign exchange derivative contracts||EUR 3 billion|
|Commodity derivative contracts and others||EUR 3 billion|
When do you need to do the calculation?
The calculation is required every 12 months. The new category of entity was originally introduced on 17 June 2019 when EMIR Refit came into force, to reduce the clearing obligation for smaller financial firms. The initial assessment date from ESMA was 17 June 2019. We therefore encourage all firms to conduct this check during May or June each year, unless you have chosen another review date.
Are you an SFC?
|No.||Scenarios||What does it mean?|
|1||The annual aggregate month-end position in one or more asset classes described above exceeds its respective clearing threshold.||You are a FC+ for all OTC derivative contracts mentioned above.|
|2||The annual aggregate month-end position in each asset class does not exceed the clearing threshold.||You are an SFC.|
|2||If you choose not to do the calculation.||You are a FC+ for all OTC derivative contracts mentioned above.|
How does this categorisation of FCs affect your EMIR reporting?
The assessment determines your requirement to clear all OTC derivative contracts pertaining to a class of OTC derivatives that has been declared subject to the clearing obligation. For further information, read Article 4(1)(a).
This consequently affects what you populate in the field Clearing Obligation when you do your daily EMIR reporting – Y, N, X.
If you become an FC+, what do you do?
- You are required to immediately notify the FCA (if you are a UK firm) or ESMA and the relevant competent authority (if you are an EU firm); and
- You will be subject to the clearing obligation from 4 months after that notification.
If you change from an FC+ to an SFC, what do you do?
- You are required to notify the FCA (if you are a UK firm) or ESMA and the relevant competent authority (if you are an EU firm) that you are no longer required to clear.
How to notify FCA and ESMA?
- FCA – notify through the Connect system; and
- ESMA – use this notification template and send it to [email protected].
For more information, please visit:
- FCA – UK EMIR notifications and exemptions; and
- ESMA – Clearing Thresholds;
Or contact us if you would like to discuss the obligation clearing assessment.