Reed Smith Client Alerts

The text of the proposed amendments to the European Markets Infrastructure Regulation (EMIR Refit) was published in the Official Journal of the European Union1 on 28 May 2019 and – with the exception of certain provisions that are subject to a delay – will come into force 20 days after publication, i.e., on Monday, 17 June 2019.

While the aim of EMIR Refit is to simplify the current EMIR2 regime and “address disproportionate compliance costs, transparency issues and insufficient access to clearing for certain counterparties”, there are certain amendments that require consideration and, in some cases, immediate action.

In this alert, we discuss certain key provisions of EMIR Refit which commodities firms should take into account when preparing for it.

Financial counterparties

This alert focuses on the changes that will affect non-financial counterparties (NFCs).3  However, it is first worth noting two major developments in relation to financial counterparties (FCs). These changes will also indirectly affect NFCs, as their EMIR obligations will differ depending on the categorisation of their counterparty.

  • Alternative investment funds (AIFs) – EMIR Refit expands the definition of FCs to capture all EU AIFs, with two minor exceptions (see our client alert entitled “EMIR amendments: Big changes for alternative investment funds”); and
  • Small financial counterparties – EMIR Refit creates a new category of small FC for those FCs whose open OTC derivatives positions do not exceed the clearing thresholds, i.e., “small FCs” or “FC-” (this is a similar sub-categorisation to NFC+ and NFC- under the current EMIR regime).
  • Although small FCs will still be subject to obligations to exchange margin, they will be exempt from the clearing obligation.
    • An FC wishing to take advantage of this regime should run this calculation every 12 months, based on the aggregate month-end average position for the previous 12 months, and must notify ESMA and its competent authority if either: (i) it does not calculate its positions; or (ii) it exceeds any of the clearing thresholds.4
    • There is no delayed implementation of the clearing obligation, so FCs must be in a position to comply on the day EMIR Refit comes into force.