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EMIR Regulation

The EMIR Regulation imposes on entrepreneurs who are financial and non-financial counterparties within the meaning of that regulation a number of obligations relating to the conclusion of derivative transactions, and in particular transactions concluded on the OTC (Over The Counter) market.

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The EMIR Regulation

The EMIR Regulation (European Market Infrastructure Regulation) means Regulation of the European Parliament and of the Council No 648/2012 of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, and other implementing regulations thereunder, including in particular Commission Implementing Regulation No 1247/2012 of 19 December 2012 and Commission Delegated Regulation No 148/2013 of 19 December 2012.

The EMIR regulations were adopted in the form of EU regulations, which means that they are binding in their entirety and directly applicable in all Member States of the European Union without requiring implementation into national legislation.

EMIR applies to enterprises established in the European Union, and EMIR differentiates requirements for individual entities depending on the category to which a given enterprise belongs under EMIR. Enterprises subject to EMIR are collectively referred to hereinafter as Counterparties.

EMIR divides enterprises into the following categories:

  • Financial Counterparties (FC) – meaning an investment firm authorised in accordance with Directive 2014/65/EU, a credit institution authorised in accordance with Directive 2013/36/EU, an insurance or reinsurance undertaking authorised in accordance with Directive 2009/138/EC, a UCITS and, where relevant, its management company, authorised in accordance with Directive 2009/65/EC unless the UCITS is established exclusively for the purpose of serving one or more employee share purchase schemes, an institution for occupational retirement provision (IORP) as defined in Article 6(1) of Directive 2016/2341, an alternative investment fund (AIF) as defined in Article 4(1)(a) of Directive 2011/61/EU, which is established in the Union or which is managed by an alternative investment fund manager (AIFM) authorised or registered in accordance with Directive 2011/61/EU, unless the AIF is established exclusively for the purpose of serving one or more employee share purchase schemes or where the AIF is a special purpose vehicle for securitisation purposes as referred to in Article 2(3)(g) of Directive 2011/61/EU, and, where relevant, its AIFM established in the Union, a central securities depository authorised in accordance with Regulation 909/2014.

Financial counterparties who, as a result of calculations, exceed one or more thresholds linked to the clearing obligation, or who do not carry out calculations, are obliged to immediately notify ESMA, the relevant supervisory authority and, depending on the type of agreement signed, Bank Handlowy w Warszawie S.A. Such financial counterparties are obliged to fulfil additional obligations under EMIR, including: (i) they become subject to the clearing obligation in respect of all OTC derivative contracts relating to any class of OTC derivatives subject to the clearing obligation; (ii) within 4 months of the notification, they should conclude clearing arrangements; (iii) they are subject to transaction reporting requirements, collateral exchange requirements and various risk mitigation techniques; (iv) they are obliged to submit to the relevant supervisory authority an application for authorisation before applying or modifying the initial margin calculation model.

Financial counterparties who have exceeded the threshold linked to the clearing obligation or who do not carry out calculations are referred to as FC+, while financial counterparties who do not exceed the thresholds linked to the clearing obligation are referred to as FC-.

FC- are exempt from the clearing obligation but remain subject to transaction reporting requirements, collateral exchange requirements and various risk mitigation techniques.

FC+ who on 24 December 2024 were subject to the clearing obligation or will from that date become subject to the clearing obligation, who exceed the clearing threshold in any of the following categories of derivative contracts: (i) interest rate derivatives denominated in euro or Polish zloty; or (ii) short-term interest rate derivatives denominated in euro – are required to maintain at least one active account at an EU CCP providing clearing services for those derivative instruments and must settle through that active account at least a representative number of transactions.

 

  • Non-Financial Counterparties (NFC) – meaning an enterprise established in the European Union other than a Financial Counterparty (FC).


Non-financial counterparties who, as a result of calculations, exceed one of the thresholds linked to the clearing obligation, or who do not carry out calculations, are obliged to immediately notify ESMA, the relevant supervisory authority and, depending on the type of agreement signed, Bank Handlowy w Warszawie S.A. Such counterparties are obliged to fulfil additional obligations under EMIR, including: (i) they become subject to the clearing obligation in respect of the class of OTC derivatives whose calculation result exceeds the thresholds linked to the clearing obligation, or – if the non-financial counterparty has not calculated its position – relating to all classes of OTC derivatives subject to the clearing obligation; (ii) within 4 months of the notification, they should conclude clearing arrangements; (iii) they are subject to transaction reporting requirements, collateral exchange requirements and various risk mitigation techniques; (iv) they are obliged to submit to the relevant supervisory authority an application for authorisation before applying or modifying the initial margin calculation model.


Non-financial counterparties who have exceeded the threshold linked to the clearing obligation or who do not carry out calculations are referred to as NFC+, while financial counterparties who do not exceed the thresholds linked to the clearing obligation are referred to as NFC-.

NFC- are exempt from the clearing obligation, the collateral valuation obligation and the collateral exchange obligation, but remain subject to various risk mitigation techniques (regarding timely confirmation of transactions, portfolio reconciliation, portfolio compression, dispute resolution) and, to a limited extent, to transaction reporting requirements.

NFC+ who on 24 December 2024 were subject to the clearing obligation or will from that date become subject to the clearing obligation, who exceed the clearing threshold in any of the following categories of derivative contracts: (i) interest rate derivatives denominated in euro or Polish zloty; or (ii) short-term interest rate derivatives denominated in euro – are required to maintain at least one active account at an EU CCP providing clearing services for those derivative instruments and must settle through that active account at least a representative number of transactions.

 

The EMIR Regulation introduces three main obligations, described below:
  • The obligation to have risk mitigation procedures for OTC derivative transactions not cleared by a central counterparty;
  • The obligation to clear selected OTC derivative contracts through a central counterparty;
  • The obligation to report concluded derivative contracts to trade repositories.

The EMIR Regulation introduces the obligation to implement appropriate procedures and arrangements for assessing, monitoring and mitigating the operational and credit risk of the Counterparty.

The above-mentioned obligation was clarified by Commission Delegated Regulation (EU) No 149/2013, which introduces detailed technical standards relating, inter alia, to the above-mentioned procedures.

Timely Confirmation of Transactions

Confirmation of the conclusion of a derivative transaction must be provided within the timeframe no longer than specified in the EMIR regulation. The regulation provides for the progressive shortening of the deadline for confirming transactions, which after 31 August 2014 is to occur:

  • For FC and NFC+ by the end of the 1st business day after the date of conclusion of the transaction;
  • For NFC- by the end of the 2nd business day after the date of conclusion of the transaction.
Portfolio Reconciliation for Derivative Transactions

Counterparties concluding derivative transactions are obliged to have procedures for carrying out periodic reconciliation of derivative transaction portfolios.

Portfolio Compression

Counterparties with more than 500 open and uncleared derivative transactions are obliged to have procedures for checking the feasibility of portfolio compression in order to reduce their credit risk. In accordance with Commission Delegated Regulation (EU) No 149/2013, counterparties must be able to provide the relevant supervisory authority with reasonable explanations of their assessment according to which portfolio compression should not be carried out.

Dispute Resolution

Counterparties who conclude OTC derivative contracts between themselves should have procedures related to the resolution of disputes regarding the recognition of the contract, valuations or collateral exchange.

Daily Valuation of Active Contracts at Market Value

FC and NFC+ counterparties are obliged to carry out daily valuations of derivative transactions based on market quotations or, where this is not possible, on a model basis.

Obligation to Clear Selected OTC Derivative Contracts through a Central Counterparty

Certain types of derivative transactions concluded outside a regulated market will be subject to mandatory clearing through so-called central counterparties.

The date on which the central clearing obligation enters into force depends on the authorisation of the first CCP and ESMA's decision to subject a given type of derivative transaction to that obligation.

The probable date of entry into force of the central clearing obligation for the first types of derivative transactions is the second half of 2014.

Obligation to Report to the Trade Repository

In accordance with EMIR, Counterparties are obliged to maintain records of all derivative contracts concluded by them and all changes thereto for at least five years from the date of termination of the contract. Furthermore, Counterparties are obliged to report to the trade repository detailed information on each derivative contract concluded by them, as well as on any changes to or termination of that contract. The obligation to report to the trade repository applies to derivative contracts that:

  • Were concluded before 16 August 2012 and continue to be in force on that date;
  • Were concluded on or after 16 August 2012.

Reporting of derivative transactions may be carried out individually by each party to the transaction or may be delegated to another entity, i.e. the other party to the transaction or a third party. However, responsibility for reporting remains with the party to the transaction at all times.

The reporting requirement entered into force on 12 February 2014 (Article 5 of Commission Implementing Regulation (EU) No 1247/2012).

Obligation for Counterparties to Have a LEI Number

Legal Entity Identifier (LEI) is a unique number identifying entities that are parties to transactions concluded on financial markets. LEI codes will be assigned to market participants worldwide by a network of Local Operating Units (LOU), integrated within a global system, and will enable the assessment of credit risk generated by institutional financial and non-financial entities on a global scale.

Holding an LEI code (or, during the transitional period, a pre-LEI code) is necessary for transmitting information on concluded derivative contracts to trade repositories (in accordance with the ESMA schedule, the obligation to report to trade repositories entered into force on 12 February 2014).

In Poland, on 29 November 2013, KDPW began assigning identification numbers based on the ISO 17442 standard, compliant with the LEI standard – the so-called KEI. In accordance with the decision of the Regulatory Oversight Committee (ROC) – the regulatory supervisory body overseeing the global LEI code assignment system – KDPW obtained the status of a pre-LOU entity. Consequently, the numbers assigned by KDPW for the purpose of reporting information to trade repositories become pre-LEI codes. This also applies to codes assigned by KDPW before 27 December 2013 (the so-called KEI).

https://www.leiroc.org/

Disclaimer

This material is for informational purposes only and may not under any circumstances be treated as a binding commitment of any person, including the Brokerage Office of Bank Handlowy w Warszawie S.A. (hereinafter: "DMBH"), for any reason, including in relation to the accuracy or completeness of the information contained herein. Any liability of DMBH, its Management, employees, associates and agents in connection with this material and the information contained therein is excluded. This material does not create any obligations on the part of any party with respect to the conclusion, consequences of the conclusion or obligations arising from the conclusion of the transactions described in this material.

This material does not constitute advice or a recommendation regarding the principles of fulfilling the obligations imposed by the EMIR regulation.

The Client should not make any decisions regarding the fulfilment of obligations arising from the EMIR regulation solely on the basis of this material without conducting their own analyses. DMBH recommends that the Client seek independent, professional advice from advisors, including legal advisors. Decisions regarding the conclusion of transactions with BMBH, including the timing thereof, the rules for reporting transactions to the trade repository and the fulfilment of other obligations imposed by the EMIR regulations, are made by the Client independently and without reference to DMBH.

DMBH bears no responsibility for the above-mentioned decisions of the Client and their consequences, in particular for any loss suffered by the Client (in particular losses incurred, lost profits and financial penalties imposed on the Client).

The above information takes into account the legal status as of 28/01/2014.