• What is the EMIR?
    The EMIR is the EU Regulation no. 648/2012 of the European Parliament and of the Council of 4 July 2012 relating to OTC derivatives, central counterparties and trade repositories (EMIR - European Market Infrastructure Regulation).
    On 15 March 2013, the EU Delegated Regulations no.148/2013, 149/2013, 150/2013, 151/2013, 152/2013 and 153/2013 of the Commission concerning the regulatory technical standards entered into force.

  • Am I covered by the EMIR?
    The EMIR covers all authorised financial firms in the EU and non-financial based in the EU. It also covers non-financial firms in third countries that would be subject to the clearing obligation if they were based in the EU.
  • What does the EMIR provide for? 
    • The classification of the counterparties in OTC derivatives trade as Central Counterparties (CCP), Financial Counterparties (FC) or Non-Financial Counterparties (NFC);
    • Obtaining a Legal Entity Identifier (LEI) for financial and non-financial counterparties;
    • The clearing obligation of all transactions of certain classes of derivatives;
    • The signing of a written protocol between all counterparties concerned about reconciliation procedures and dispute resolution;
    • The registration of all derivatives trading in a trade repository approved by ESMA;
    • The existence of procedures to mitigate risk in derivatives trading not subject to the Clearing obligation. 
  • Who is considered to be the financial counterparty? 
    (i) Investment firms authorised under Directive no. 2004/39/EC;
    (ii) Credit institutions authorised under Directive no. 2006/48/EC;
    (iii) Insurance companies authorised under Directives no. 73/239/EEC and 2002/83/EC;
    (iv) Reinsurance companies authorised under Directive no. 2005/68/EC;
    (v) Undertakings for the collective investment of transferable securities and, if necessary, their management companies under Directive no. 2009/65/EC;
    (vi) Institutions for occupational retirement provision, within the meaning of paragraph a) of article 6 of Directive no. 2003/41/EC; or
    (vii) Alternative investment funds managed by an entity responsible for the authorised or registered management under Directive no. 2011/61/EU.

  • What is Clearing?
    It is the process of establishing positions, including the calculation of net obligations, and ensuring the availability of financial instruments, cash or both to ensure compliance with the exposures arising from these positions.
  • Which types of derivatives are subject to compulsory clearing?
    The regulatory technical standards are not yet fully completed with regard to clearing obligations. It is expected that until 15 September 2014 ESMA will report on this subject.
    For the classes of derivatives subject to clearing obligation it will be necessary to clear all transactions through a financial counterparty or a non-financial counterparty that exceeds the threshold of positions established for the purpose.
  • What is the threshold of positions that require the clearing of transactions of a non-financial counterparty?

    If a non-financial counterparty maintains positions in a class of derivatives that exceeds its threshold, it will be obliged to clear its transactions. The current thresholds defined by ESMA are:

    • €1,000,000 in Credit Derivatives
    • €1,000,000 in Share Derivatives
    • €3,000,000 in Interest Rate Derivatives
    • €3,000,000 in Exchange Rate Derivatives
    • €3,000,000 in Other Derivatives, namely Commodities

    The relevant value for this effect is calculated from the average of the gross notional values by class of derivative, over the past 30 days.

    Within a class it is possible to exempt certain positions, particularly those intended for risk hedging, accounted for as such, or related to intra-group transactions in accordance with the regulatory technical standards.

  • How does the protocol for reconciliation and dispute resolution work? 
    Under the EMIR, the counterparties in derivative transactions must establish written agreements specifying their quality for the purpose of reconciliation. Under the agreement submitted, Banco Carregosa takes responsibility for sending the information and the client assumes responsibility for reconciling the transactions reported in relation to its internal records.
    The minimum frequency of reconciliation depends directly on the number of transactions made by the client with Banco Carregosa.
    The dispute resolution agreement establishes the relevant venue for the purpose of determining the working day.
    This agreement further establishes the contact to be used with regard to portfolio information, discrepancies in the reconciliation and dispute resolution. 
  • How can I report to the Transaction Repository? 
    You can report it yourself or hire a third party to do it for you. If you opt for the former, you will have to hire a repository approved by ESMA. The annual costs of this service are high and it can be unrewarding for clients with few positions.
    You can also delegate this task to Banco Carregosa or another entity that provides this service.

  • In short, what is the scope of the EMIR? 
    The EMIR applies to financial and non-financial counterparties, i.e. companies established in the EU, that trade and maintain positions in derivatives that are not securities.
  • What is the least I have to do to comply with the EMIR? 
    If you are covered by the EMIR, both by its nature and by your operations, you should:
    • Sign the protocol to fulfil obligations relating to OTC derivatives;
    • Obtain a LEI;
    • Ensure there are reconciliation and dispute resolution procedures, as well as risk mitigation.
  • What is the protocol to fulfil the obligations relating to OTC derivatives? 
    It is an agreement where:
    • The reconciliation and dispute resolution procedures between Banco Carregosa and the client are established;
    • The delegation to Banco Carregosa of the obligation to report transactions and positions to the Trade Repository is allowed; and
    • The Client indicates his LEI and type of counterparty.
    By default, the contract establishes:
    • The delegation of the reporting obligation;
    • That the operations performed by the client are not directly related to the commercial activity or its treasury management;
    • Portugal as the location for counting deadlines for dispute resolution with regard to time zones and working days; and 
    • The contacts for portfolio information and notification of discrepancies/dispute resolution, such as the contacts mentioned in the account opening process.  
    • However, the client may determine differently when filling in Annex I. 
    • This agreement can be obtained here.
  • What risk mitigation procedures must I have?
    The Counterparties with over 500 open positions not cleared with a single counterparty will be required to have a procedure for analysis and executing portfolio compression, to be done biannually. In particular, this procedure involves the analysis of the closure of long positions held in parallel with short positions.