Research European Commodity Market Regulations - Part 1 | Page 9

European Energy Market Regulations V3.1

EMIR Rules Overview
As outlined above, EMIR is based on the declaration at the G20 Summit in Pittsburgh in 2009. It
entered into force on 16 August 2012. The European Securities Market Authority (ESMA)
implements EMIR, and the local National Compliance Authorities (NCAs), such as the UK FCA,
enforce it. The Regulatory Technical Standards to implement many of the rules were proposed in
December 2012 and subsequently approved by the European parliament in February 2013.
EMIR has four key themes:
Trade Reporting – This requires all derivatives (OTC and Exchange Traded) to be reported to
third party “Trade Repositories” (TR). Both sides of the deal must report the trade using the
same identifier, within T+1. This requirement is to commence on 12th February 2014 for all
derivatives, whether OTC or Exchange Traded.
Clearing of OTC Derivatives – It is desired that as many OTC derivatives as possible are
cleared via CCPs. This will generally apply to more standardized derivatives. There will also
be new rules about the margin requirements of uncleared derivatives but these are not yet
finalized.
Risk Mitigation – Five sets of rules designed to mitigate risk: Timely Confirmations, Portfolio
Reconciliation, Dispute Resolution, Portfolio Compression, and Daily Mark to Market/Model.
These rules are explained in more detail in the section below.
CCPs (Central Clearing Counterparties) – Rules about the running and funding of CCPs that
are not relevant to the Energy Trading business.

Different types of party under EMIR
EMIR defines four types of party:
1) Financial Counterparties (FC) such as banks and other financial institutions
2) Non-Financial Counterparties (NFC) – all other EU-based entities. These are further divided
into:
a. Over the “threshold” (NFC+) - those who trade over a certain amount per year
b. Under the “threshold” (NFC-) – those who trade under a certain amount per year
3) Third country – those outside the EU
NFCs must determine their status by using a different threshold number for each asset class as
follows:
•
•
•
•
•

Credit - €1bn
Equity - €1bn
Interest Rates - €3bn
FX - €3bn
Commodities - €3bn

The numbers above refer to annual gross notional numbers. Only “unhedged” trades are to be
included in this number. Only one of these numbers must be breached in order for the trading entity
to be considered “over the threshold”.
It has been obligatory to report being over the threshold since 15th March 2013. All market
participants are obligated to be calculating their totals on a daily basis, using a 30-day average.
Those under the threshold have a more lenient interpretation of the rules, as will be outlined below.

© Commodity Technology Advisory LLC and ETR Advisory Ltd, 2013, All Rights Reserved.

v3.1

November 13th, 2013

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