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Brexit, EMIR, Mifid

Clearing and trading obligation issues – and a Brexit related announcement from ESMA

Last week ESMA issued this statement relating to the upcoming expiry of the temporary carve out provided to certain entities, including those designed as “NFC+” under EMIR, from the clearing obligation under EMIR and resulting trading obligation under MiFID II. Companies in the energy and commodities sector are largely “Non Financial Counterparties” and some are over the EMIR clearing threshold, i.e. NFC+.  The issue is that when the carve out ends, such entities will have to clear certain instruments, such as some Interest Rate Swaps, including, in some cases, between internal entities. ESMA has several weeks ago submitted a report to the Commission recommending that the timeline be delayed (see here).

At present, those breaking the clearing threshold must apply the clearing rules to all asset classes. For example, an entity breaking the commodities threshold would be obliged to apply the requirement for interest rate instruments. Under the proposed “REFIT” changes to EMIR(see here), the obligation would only apply to the asset class where the threshold is broken. However, the changes have not yet been published in the Official Journal and are thus unlikely to apply before the 21st December. As ESMA do not have the power to change the dates themselves, they recommend that National Competent Authorities exercise enforcement appropriately.

Proposed Brexit measure from ESMA to aid novation
Yesterday, ESMA released this report which proposes to permit the novation of contracts between EU and UK entities without triggering the clearing obligation for a period of a year. This would, from the EU perspective, provide more “order” in the event of a “hard Brexit” should EU entities no longer be permitted to benefit from Investment Services offered from UK entities. The statement is discussed in this article on The Trade News web site.

About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.

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