The European Commission have issued proposals to overhaul EMIR following the EMIR review that took place in 2015, and proposals which resulted from it.
There are many changes, of which some are targeted at Non Financial Counterparties(NFC). Most energy and commodity traders currently have NFC status. The proposal can be found here.
The proposal plans to change how the clearing threshold is calculated. Those over the threshold (“NFC+”) must comply with mandatory clearing rules uncleared margin rules and more stringent reporting and risk management requirements. The proposal is to change the calculation from a daily one to an annual one based on a snapshot of data using month end numbers from March, April and May of a specific year. The proposal from ESMA and others to remove the “hedge exemption” from the calculation has not gone ahead. Those who become NFC+ will now only be required to follow the clearing rules for the asset class in which the threshold has been breached.
There are also major changes on the reporting side, in that the proposal encompass “enforced delegation” under some scenarios. Contrary to some reports, this is not a move to single sided reporting. Rather, when an NFC- executes a trade with an FC counterparty, the FC must report both sides, and has full responsibility for doing so. This will help some energy and commodity traders, but only when transacting with an FC (often both sides are NFC). In addition, intra group trades where one counterparty is an NFC are no longer reportable. This will benefit most energy and commodity traders. CCPs are now required to report Exchange Traded Derivatives. Finally the last backloading deadline, which was moved by 2 years to 2019, is removed.
These changes will be of benefits to many energy and commodity traders, especially those who primarily trade with FCs. However, although the load is lightened, the need for compliance is not removed, since trades between NFCs are still reportable, and these comprise a large proportion of trades. The rules now need to be approved by the European Parliament and Council.