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EMIR - Clearing obligation


Published: 31 March 2022

To which OTC derivatives does the clearing obligation apply?

The clearing obligation only applies to standardised classes of OTC derivative contracts that have been specified as being subject to this obligation, and to contracts concluded between parties specified in EMIR, e.g. between two financial counterparties or between a financial counterparty and a specified non-financial counterparty. In determining which classes of OTC derivatives must be cleared centrally, ESMA takes into account the extent of standardisation, the volume and liquidity in the market as well as the availability of fair, reliable and generally accepted information on pricing.

From which threshold values and for which derivative classes does the clearing obligation apply?

Institutions must clear all OTC derivatives belonging to a class of OTC derivatives that is subject to the clearing obligation. EMIR specifies two categories of counterparties to which the clearing obligation applies, if the total number of positions exceeds one of the clearing thresholds:

  • Financial Counterparties (FC), as defined in Article 2(8) of EMIR
  • Non-financial counterparties (NFC), as defined in Article 2(9) of EMIR

When the total number of derivative positions of an FC exceeds the threshold for one of the derivative classes, the clearing obligation applies to all product classes that are subject to the clearing obligation. When the total number of derivative positions of an NFC exceeds the threshold for a derivative class, the clearing obligation only applies to that same derivative class. FCs and NFCs that do not calculate the number of derivative positions are subject to the clearing obligation for all classes of derivatives.

The clearing obligation currently applies to standardised types of interest rate and credit derivatives, such as IRS and CDS. ESMA maintains a public overview specifying the classes and types of derivatives to which the clearing obligation applies. A contract must be cleared if both counterparties are subject to the clearing obligation for this contract.

Intragroup exemption from the central clearing obligation

OTC derivative contracts that can be qualified as intragroup transactions are not subject to the clearing obligation (Article 4(2) of EMIR) under specified circumstances. Article 3 of EMIR defines what an intragroup transaction is in the context of EMIR and specifies when an intragroup transaction is exempt from the clearing obligation. The exemption from the clearing obligation for intragroup transactions only applies if the competent authority has been notified accordingly in writing and in good time, as set out in Article 4(2) of EMIR. Institutions holding a license issued by DNB can send their notification and/or application for an intra-group exception to the supervisor.

Exemption for OTC derivative contracts on account of pension schemes

The clearing obligation does not yet apply to OTC derivative contracts for which it can be established objectively that they mitigate the investment risks directly associated with financial solvency of pension schemes as described in Article 2(10) of EMIR. The European Commission has decided to extend this temporary exemption, as laid down in EMIR Article 89(1), by another year until 19 June 2023 (last possibility under current EMIR). OTC derivative contracts qualifying for the exemption must still apply the risk-mitigation techniques applicable to non-centrally cleared OTC derivative contracts (see Article 11 of EMIR).

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