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OTC derivatives and clearing obligation

OTC derivatives and clearing obligation

EMIR includes the obligation to centrally clear certain classes of over-the-counter (OTC) derivative contracts through Central Counterparty Clearing (CCPs) or apply risk mitigation techniques when they are not centrally cleared.

Counterparties subject to central clearing obligation

The clearing obligation applies to EU firms that are counterparties to an OTC derivative contract including interest rate, foreign exchange, equity, credit and commodity derivatives.

EMIR identifies two categories of counterparties to whom the clearing obligation applies:

  • Financial counterparties (FC) such as banks, insurers, asset managers, etc.
  • Non-financial counterparties (NFC) which includes any EU firm whose positions in OTC derivative contracts (unless for hedging purposes) exceed the EMIR clearing thresholds.

Pension funds were exempted from central clearing until 15 August 2015, as well as intra-group transactions, under certain conditions.

Classes of OTC derivatives subject to central clearing obligation

EMIR introduces the obligation to clear certain classes of OTC derivatives in CCPs that have been authorised (for European CCPs) or recognised (for non-EU CCPs) under the EMIR framework.

EMIR foresees two possible processes for the identification of the relevant classes of OTC derivatives:

  1. The “bottom-up” approach described in EMIR Article 5(2), according to which the determination of the classes to be subject to the clearing obligation will be done based on the classes which are already cleared by authorised or recognised CCPs.
  2. The “top-down” approach described in EMIR Article 5(3), according to which ESMA will on its own initiative identify classes which should be subject to the clearing obligation but for which no CCP has yet received authorisation.

In accordance with the clearing obligation procedure and the EC mandate, ESMA shall develop and submit to the EC for endorsement draft regulatory technical standards (RTS) specifying:

  • the class of OTC derivatives that should be subject to the clearing obligation;
  • the date or dates from which the clearing obligation takes effect, including any phase in and the categories of counterparties to which the obligation applies; and
  • the minimum remaining maturity of the OTC derivative contracts subject to frontloading.

The clearing obligation procedure started in Q1 2014 following the first EU CCPs authorisations. Since then, ESMA has analysed several classes of interest rate, credit, equity and foreign-exchange OTC derivatives and proposed some of them for the clearing obligation.

The table below provides an overview of the current status of the clearing obligation process for those classes.


Asset Class Classes Consultation Paper Final Report Other documents Status of RTS Last Update
Interest Rate Basis, Fixed-to-float, FRA and IOS in EUR, GBP, JPY and USD

11 Jul 2014

Consultation Paper (n°1)

1 Oct 2014

Final Report (n°1)

06 Mar 2015

Opinion on the RTS on IRS

RTS published in the Official Journal 1 Dec 2015
Interest Rate FRA and fixed-to-float swaps in NOK, PLN and SEK

11 May 2015

Consultation Paper (n

10 November 2015
Final Report (n°3)

RTS published in the Official Journal

20 July 2016
Equity Lookalike/Flexible equity derivatives and CFD

11 Jul 2014

Consultation Paper (n°1)

1 Oct 2014

Final Report (n°1)

  No RTS proposed at this stage 1 Oct 2014
Credit Index Credit Default Swaps

11 Jul 2014

Consultation Paper (n°2)

1 Oct 2015
Final Report (n°2)

20 Nov 2014

Letter to the Commission on RTS on CO

RTS published in the Official Journal

19 April 2016
Foreign Exchange Non-deliverable Forward (NDF) 1 Oct 2014 Consultation Paper (n°3)  

4 Feb 2015

Feedback statement on NDF

No RTS proposed at this stage 4 Feb 2015

The Public Register for the Clearing Obligation includes the classes of OTC derivatives that CCPs are authorised to clear. The classes of OTC derivatives subject to the clearing obligation will also be listed in this register once the process is finalised, i.e. after the publication of the relevant technical standards in the Official Journal of the Union.


Non-financial counterparties (NFC) need to inform ESMA both when they exceed the clearing threshold and when they no longer exceed it.
The same notifications need to be made to a NFC’s national regulator, using the template which, for ESMA, should be sent to EMIR-notifications[at]

Non-EU counterparties

Under certain conditions, the clearing obligation may also apply to third-country (non-EU) counterparties including when:

  • EU counterparties trade with entities established outside the EU;
  • Two entities established outside the EU trade together, and;
  • An impact on EU markets exists (a direct, substantial and foreseeable effect in the EU)

The final ESMA report on draft regulatory technical standards on direct, substantial and foreseeable effect in the EU was endorsed by the European Commission on 13 February 2014 (Commission Delegated Regulation (EU) No 285/2014.

Risk mitigation techniques

EMIR’s risk mitigation requirements apply to all non-centrally cleared OTC derivative transactions, those techniques include timely confirmation, portfolio reconciliation and compression, and dispute resolution procedures. The only remaining open point is the publication of the RTS on the exchange of collateral, bilateral margining. There was a consultation by EBA, ESMA and EIOPA on draft RTS between April 2014 and July 2014, followed by a second consultation which was launched on 10 June 2015. The final draft RTS were published by the ESAs and delivered to the European Commission on 8 March 2016.

The draft RTS contain the following provisions:

  1. For OTC derivatives not cleared by a Central Counterparty (CCP), the draft RTS prescribe that counterparties have to exchange both initial and variation margins. This will reduce counterparty credit risk, mitigate any potential systemic risk and ensure alignment with international standards.
  2. List of eligible collateral for the exchange of margins, the criteria to ensure the collateral is sufficiently diversified and not subject to wrong-way risk, as well as the methods to determine appropriate collateral haircuts.
  3. Operational procedures related to documentation, legal assessments of the enforceability of the agreements and the timing of the collateral exchange. 
  4. Procedures for counterparties and competent authorities related to the treatment of intragroup derivative contracts.

The RTS will be applied in a proportionate manner to allow counterparties to phase-in the requirements.


  Date of application FC NFC+ NFC-
Daily mark-to-market 15/03/2013 Yes Yes No
Timely confirmation 15/03/2013 Phase in per asset class.

Final deadline=T+1

Phase in per asset class. Final dealine=T+2
Portfolio reconcillation 15/09/2013 Every day, week or quarter depending on portfolio size. Every quarter or year depending on portfolio size.
Portfolio compression 15/09/2013 When counterparties have more than 500 contracts outstanding with each other, obligation to have procedures to analyse the possibility to conduct the exercise.
Dispute resolution 15/09/2013 Procedures in place + reporting to the competent authority Procedures in place
Exchange of collateral* RTS to be drafted by the ESAs Yes No

* Exemptions: intragroup transactions