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European Market Infrastructure Regulation (EMIR)
A regulation passed by the EU that implements the G-20 2009 Pittsburgh Agreement to introduce regulations to reduce systemic risk in the banking system, in a similar fashion to Dodd-Frank. The European Securities and Markets Authority (ESMA) will be the implementing authority. The regulation includes four ‘pillars’:
1) Transparency via trade reporting.
All over-the-counter (OTC) and exchange-traded derivatives (ETD) deals to be reported to registered trade repositories.
2) Clearing. As many standardised OTC derivatives as possible to be cleared via central counterparties (CCPs) and moved to electronic trading.
3) Rules on the running of CCPs.
4) Risk management. Five measures to reduce risk:
a) timely confirmations
b) portfolio reconciliation
c) portfolio compression
d) dispute resolution
e) mark-to-market/model rules.
EMIR applies to financial counterparties (FCs) and non-financial counterparties (NFCs), such as energy traders, in different ways. All must report trades. Clearing is likely to only apply to NFCs that are over a ‘threshold’ (known as NFC+ participants). Each risk management measure differs depending on which type of market participant is being considered – FC, NFC or NFC+.
* see also central counterparty (CCP); Dodd-Frank; G-20 2009 Pittsburgh Agreement; Markets in Financial Instruments Directive (MiFID); Markets in Financial Instruments Directive II (MiFID II); portfolio compression; portfolio reconciliation; trade repository