After the publication of 15 revised drafts of the long-awaited Regulation of the European Parliament and Council on OTC Derivatives, Central Counterparties and Trade Repositories (commonly known as “EMIR”), you would be forgiven for thinking that the Europeans were never likely to see a conclusion to legislative attempts to regulate their over-the-counter (“OTC”) derivatives market. However, on 9 February 2012, a trialogue meeting of the European Parliament, the Council and the European Commission at long last reached agreement on the final text of EMIR1, and since we last provided an update on OTC derivatives reform in the EU2, the wheels of the legislative process have turned extensively, even if slowly.
Although the publication of the legislation finally puts in place the broad regulatory framework to govern the OTC derivatives market and establishes common rules for central counterparties and trade repositories, much of the real detail has yet to be drafted. The European Securities and Markets Authority (“ESMA”) now has responsibility for putting the flesh on the bones, in the form of drafting scores of technical standards to implement the EMIR provisions.
Even before the final text of EMIR was released, ESMA published a draft discussion paper (the “Paper”) setting out some draft proposals for some of these technical standards, and requesting views. Insights that can be gleaned from the Paper into ESMA’s thinking are somewhat mixed. In some areas, ESMA has clearly had time to develop its analysis and has provided a detailed view of the appropriate technical standards that it currently considers should be applied, subject to the views and comments of affected parties (referred to in the Paper as “stakeholders”). In other places, it is clear that ESMA has a more nascent view of the position that it wishes to take, perhaps because the relevant requirement for a technical standard has appeared relatively late in the EMIR negotiation process and it simply has not had enough time to develop its thinking. In these cases, ESMA has still invited stakeholder views generally, although this questioning is much less focused and provides limited guidance to the stakeholder.
This update aims to summarise where the final provisions of EMIR ended up and set out ESMA’s initial views on how the key parts of EMIR will be applied.