Brussels,

Derivatives - EMIR

The European market infrastructure regulation (EMIR) establishes rules for over-the-counter (OTC) derivatives, central counterparties (CCPs), and trade repositories, aiming to enhance transparency, mitigate credit risk, and reduce operational risk in the derivatives market.

What the EU is Doing and Why

• Role of Derivatives: Derivatives are vital to the economy but carry risks, as highlighted during the 2008 financial crisis. EMIR, adopted in 2012, was designed to address these risks by increasing market transparency, mitigating credit risk, and reducing operational risk.
  

Enhancing Transparency

• Transparency Measures: EMIR mandates detailed reporting of all derivative contracts to trade repositories, with data made available to supervisory authorities. Trade repositories must also publish aggregate positions by derivative class, under the supervision of the European Securities and Markets Authority (ESMA).
  

Mitigating Credit Risk

• Credit Risk Mitigation: EMIR reduces counterparty credit risk by requiring that all standardized OTC derivatives contracts be centrally cleared through CCPs. For non-cleared contracts, specific risk mitigation techniques are mandated. CCPs must adhere to strict prudential, organizational, and business conduct requirements.
  

Reducing Operational Risk

• Operational Risk Reduction: The regulation compels market participants to monitor and mitigate operational risks, such as fraud and human error, by using electronic methods to promptly confirm OTC derivatives contract terms.
  

Additional Resources

• Equivalence Decisions under EMIR
  
• Definitions: Derivatives, CCPs, Trade Repositories
  

These measures ensure a safer and more transparent derivatives market within the EU, reducing the risks that were prevalent during the financial crisis.