The European Market Infrastructure Regulation (EMIR) injects extra regulation and transparency requirements into the trade in over-the-counter (OTC) derivatives, including mandatory central clearing.
Many pension schemes use OTC derivatives to hedge their risks, and there are concerns that making this process more cumbersome and costly could force schemes to reduce their hedging activity – potentially increasing the risk in the financial system.
One of the most sensitive aspects of EMIR is its requirement for central clearing for all OTC derivatives contracts. Pension schemes were exempt from central clearing until August 2015, chiefly because no adequate system had been developed to allow them to post their (largely) non-cash assets as collateral.
The European Commission has decided to extend the exemption to August 2018. This follows a previous extension to August 2017, which in turn was based on a report from Bourse Consult and Europe Economics.
The EC is expected to launch a review of EMIR in early 2017. This will eventually lead to a new edition of the legislation – ‘EMIR II’.
By James Walsh
Policy Lead: EU & International
FCA webpages on EMIR
BIS / IOSCO 2nd consultation on margin for non-centrally cleared trades