EMIR Refit
EMIR (European Markets Infrastructure Regulation) is a key piece of European legislation that regulates derivatives, central counterparties and trade repositories. EMIR came into force in 2012 introducing requirements aimed at improving the transparency and the stability of derivatives markets and to reduce the associated risks. The obligations following from EMIR gradually took effect from 2013 and onwards.
Review of EMIR
The review of EMIR, also known as EMIR REFIT, contains multiple targeted reforms to further improve the functioning of the derivatives market in the EU. These reforms provide simpler and more proportionate rules for over-the-counter (OTC) derivatives to reduce costs and regulatory burdens for market participants without compromising financial stability.
The final text of EMIR REFIT was published on 28 May 2019 and will enter into force 20 days thereafter.
Contact us for more information or advice
Please note that this publication only serves to provide general background information, and does not cover every aspect of this topic. It is not designed to provide individual, legal or other advice and should not be relied upon in that regard. EMIR REFIT might impact (OTC) derivatives business and your relationship with us, so we urge you to inform yourself on this subject and obtain appropriate professional advice where necessary.
1. What changes for financial counterparties?
Exemption from the clearing obligation for small financial counterparties (SFCs)
With EMIR REFIT, the scope of the mandatory clearing obligation has changed. A new category of counterparties allows financial counterparties whose OTC derivative positions do not exceed any of the clearing thresholds (small financial counterparties, SFCs), to be exempt from the clearing obligation.
Financial counterparties may perform the necessary position calculations and notify their relevant competent authority and ESMA if their positions exceed one of the clearing thresholds or if they do not perform this calculation. Financial counterparties that choose not to calculate their positions will be subject to the clearing obligation.
Financial counterparties may calculate -every 12 months- their aggregate month-end average position for the previous 12 months. These positions must be aggregated at the level of the group to which they belong. Calculations for UCITS and AIFs will have to be performed at the fund level. The average position must be compared with the following clearing thresholds that currently apply:
| Asset Class | Threshold in gross notional value |
| Credit derivatives | €1 billion |
| Equity derivatives | €1 billion |
| Interest rate derivatives | €3 billion |
| Foreign exchange derivatives | €3 billion |
| Commodity and other derivatives | €3 billion |
We kindly request you to inform us this if you meet all of the following criteria:
- you are (or will become) a financial counterparty to OTC derivative transaction(s) with Rabobank; and
- you performed the necessary calculation and your aggregate month-end average position for the previous 12 months did not exceed any of the clearing thresholds.
Please note that EMIR REFIT does not provide for any phase-in period for the implementation of most of the new requirements. Therefore, as soon as the text entered into force on 20 days after the publication, financial counterparties may perform the necessary position calculations and notify their relevant competent authority and ESMA if their positions exceed one of the clearing thresholds or if they choose not to perform this calculation.
Definition of financial counterparty
Under EMIR REFIT, the definition of a financial counterparty is expanded to include certain additional categories of counterparties that are perceived to pose systemic risk to the financial system. The Financial counterparty definition is expanded with the following counterparties:
Please note that EMIR REFIT does not provide for any phase-in period for the implementation of mostof te new requirements. Therefore, as soon as the text entered into force, the expanded financial counterparty definition applies immediately.
2. What changes for non-financial counterparties?
Clearing obligation limited to asset class(es) for which clearing threshold is exceeded
Non-financial counterparties that exceed the clearing threshold for one asset class will be subject to the clearing obligation only in respect of that particular asset class, rather than being subject to the clearing obligation for all asset classes, which was the case under EMIR.
Non-financial counterparties may perform the necessary position calculations and notify theirrelevant relevant competent authority and ESMA if their positions exceed one of the clearing thresholds or if they do not perform this calculation. Non-financial counterparties that do not calculate their positions will be subject to the clearing obligation for all asset classes.
A slightly more technical change under EMIR REFIT is that it replaced the 30 day rolling average determination of positions of non-financial counterparty against the clearing thresholds with an annual determination. These positions must be aggregated at the level of the group to which the counterparty belongs. Non-financial counterparties may calculate their aggregate month-end average non-hedging position for the previous 12 months against the following clearing thresholds that currently apply:
| Asset Class | Threshold in gross notional value |
| Credit derivatives | €1 billion |
| Equity derivatives | €1 billion |
| Interest rate derivatives | €3 billion |
| Foreign exchange derivatives | €3 billion |
| Commodity and other derivatives | €3 billion |
We kindly request you to inform us this if you meet all of the following criteria:
- you are (or will become) a non-financial counterparty to OTC derivative transaction(s) with Rabobank;
- you performed the necessary calculation and your aggregate month-end average position for the previous 12 months exceeds one of the clearing thresholds; and
- you have demonstrated this to your relevant competent authority accordingly.
Please note that EMIR REFIT does not provide for any phase-in period for the implementation of most of the new requirements. Therefore, as soon as the text entered into force, non-financial counterparties may perform the necessary position calculations and notify their relevant competent authority and ESMA if their positions exceed one of the clearing thresholds.
Reporting to a trade repository
Under EMIR, both counterparties to a derivative transaction are required to report the details of the contract, including modifications and terminations, to a trade repository.
Under EMIR REFIT, for transactions between a financial counterparty and a non-financial counterparty that is below the clearing thresholds, the financial counterparty will have a legal liability for reporting on behalf of both counterparties. This requirement shall apply 12 months after the in force date of EMIR REFIT (i.e. 18 June 2020). The non-financial counterparty shall be responsible for ensuring that the financial counterparty is provided with the reporting details for which the it cannot be reasonably expected to possess.
A non-financial counterparty that is below the clearing thresholds may however choose to report itself rather than relying on its financial counterparty.
A non-financial counterparty that is below the clearing thresholds is under EMIR REFIT exempt from the responsibility to report transactions if it concludes a derivative contract with a third country entity that would be a financial counterparty if established in the EU, as long as the financial counterparty reports the transaction under its home reporting regime, and that the regime has been deemed equivalent.
Furthermore, the reporting obligation is to be exempted for intra-group transactions involving an nonfinancial counterparty, but only if both parties are part of the same group (and subject to consolidation and centralised risk management) and do not have a parent undertaking that is an financial counterparty. Counterparties that want to apply the exemption have to notify their relevant competent authority beforehand.