EMIR is a system of regulations that include reporting requirements to serve as a set of operational risk management standards. These requirements apply to derivative contracts and post-trade-related transactions. These regulations also established rules specifically for central counterparties (CCPs) and TRs.

The purpose of the introduction and enforcement of EMIR is to increase transparency in the European post-trade processes and market, as well as reduce systemic counterparty and operational risks by regulating OTC derivatives. The overarching goal of EMIR is to improve operations, reduce financial risks, and increase visibility to prevent future financial system turmoil.

EMIR was originally adopted by the ETC back in July 2012 and went into force in August 2012. The ETC adopted technical standards in December 2012, and went into effect in March 2013. The primary rules that were proposed included the following:

• All standardised OTC derivatives should be traded on exchanges or where available via electronic delivery methods
• All standardised OTC derivatives should be cleared through CCPs.
• Both OTC derivative contracts and listed derivatives should be reported to TRs.
• Non-centrally cleared derivatives contracts should be subject to higher capital requirements.

Read More: EMIR: A Brief Guide

As we outlined above, under the EMIR regulations, all OTC derivatives must meet strict reporting requirements, which means that all derivatives’ transactions and contracts must be reported and submitted to their respective TRs.

Additionally, under the EMIR regulations, The European Securities and Markets Authority (ESMA) is appointed to oversee all TRs, requiring them to submit any and all transaction-related information for review, set and define technical standards, conduct investigations, and take measures as required for TRs that do not adhere to specific reporting requirements.

These reports must include the following information:

• A Unique Transaction Identifier (UTI)
• A legal entity identifier (LEI)
• Information on the trading capacity of the counterparty
• The marked-to-market valuation of the position

Additionally, part of ESMA’s role is to also serve as a resource for CCPs, TRs, and other entities. For example, in July 2019, ESMA updated their FAQs specifically related to EMIR.

Read More: EMIR: A Brief Guide

It is noted that, as per Recital 13 of CDR 2017/565, “a swap on a currency should not be considered a contract for the sale or exchange of a currency and therefore could not constitute either a spot contract or means of payment regardless of the duration of the swap or option and regardless of whether it is traded on a trading venue or not”.

Furthermore FX swaps, is as part of TR Q&A 49 (page 111 of ESMA QA on EMIR implementation). TR Q&A 28 provides further regulatory input as to references on cross currency swaps, FX swaps and forwards the regulation.

Please note that The European Securities and Markets Authority (ESMA) launched in 2017 Q&A tool, providing easy access to stakeholders to consult existing Q&As and submit new questions.

ISDA has published February 17, 2020 advisory paper DERIVATIVES SUBJECT TO NON-CLEARED MARGIN RULES (INITIAL AND VARIATION MARGIN) which does not contain legal advice and should not be considered a guide to or explanation of all relevant issues or considerations in connection with the impact of margin rules on derivative transactions.

Initial and variation margins are subjects of EMIR Q&A 3a, 3b, 7, 89, 18 and 48 where reporting parties can search for their particular case.

Please note that The European Securities and Markets Authority (ESMA) launched in 2017 Q&A tool, providing easy access to stakeholders to consult existing Q&As and submit new questions.

Before we dive into the specifics of MiFIR / MiFID II, let’s look at the background and history. The Markets in Financial Instruments Directive (MiFID) has been in force in Europe since November 2007. The purpose of MiFID is to regulate Europe’s financial markets. MiFID provides a level of protection for investors who purchase or invest in investment services and activities as well as other financial products.

The overarching goal of MiFID is to ensure a high degree of protection for investors in financial instruments and to avoid market abuse altogether.

In short, MiFID helps to ensure the following:

• The proper conduct, processes, and activities of businesses, organisations, and investment firms
• Regulatory reporting
• Increased transparency among trade-related transactions and shares
• Requirements surrounding financial instruments in trading
• Requirements for regulated markets

Even though MiFID has been in force since 2007, why are organisations and enterprises still talking about it today? In October 2011, the European Commission proposed a revised version of MiFID, which involved a revised Directive and a new Regulation.

Approximately two years later, the European Union adopted the new MiFID, which became known as MiFID II and MiFIR.

Read More: Why Everyone is Talking About MiFID II / MiFIR

SFTR was originally proposed by the European Commission in January 2014. The original goal and mission of SFTR were to increase transparency in the European securities financing markets, especially after the economic downturn in 2008.

The vision was that all European-based firms would report their securities finance transactions (SFTs) to an assigned and approved trade repository under the new SFTR regulation.

Read More: SFTR in 2020: Present and Future Challenges and Solutions