In our recent Paul Hastings ‘Stay Current’ publication, we provide legal reaction to Brexit for European derivatives and derivatives regulation, focusing on the European Markets and Infrastructure Regulation (Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories, ‘EMIR’).
Quickly concluding that the application of EMIR in a post Brexit UK will, at least for the next two years or so (and likely in the longer term given we would expect our existing framework to satisfy ‘equivalence’ requirements), remain substantively unaffected, the focus of the Stay Current shifts to an EMIR status update building on the progress reports provided in our previous two EMIR related publications.
Key EMIR related developments of note reported on relate to the much anticipated first ‘go-live’ date on 21 June 2016 of the EMIR clearing obligation for certain interest rate derivatives denominated in G4 currencies and the publication earlier this year of the final Regulatory Technical Standards ( ‘RTS’) relating to the provision of initial and variation margin for certain counterparties.
In each case, however, circumstances conspired to reduce any effect or market reaction to such developments. That first clearing ‘go-live’ date was eclipsed by the result of the referendum later that same week. Then, the European Commission (‘Commission’) indicated that, unlike the United States and Japan, it will not be ready to implement the first wave of initial margin requirements in September of this year. In relation to the third major EMIR obligation, derivatives reporting, we highlight that, although affected entities have been obliged to report for over two years, uncertainties remain.
In the fast moving world that is European derivatives’ regulation, there have already been further developments since we published. On 20 July 2016, the same day the Stay Current was published, the Commission published the Delegated Regulation relating to certain interest rate swaps denominated in certain non-G4 currencies with the first related ‘go-live’ date occurring on 9 February 2017 for ‘Category 1’ entities.
More recently, in relation to the margin requirements for uncleared derivatives, on 22 July the Commission’s response to the European Supervisory Authorities’ (the ‘ESAs’) 30 June 2016 letter was published, the Commission agreeing that any delay in adopting the draft RTS should be as short as possible and that it is fully committed to implementing the margin standards as soon as possible. Then, on 28 July 2016, the Commission published its letter to the ESAs, confirming its intention to endorse, with certain amendments the related draft RTS. The letter attaches a copy of the draft RTS that the Commission intends to adopt and summarises what it considers the most important amendments which include the much debated adjusted implementation timeline. The ESAs now have six weeks to respond.
Progress continues, and on 1 August 2016 ISDA published three further documents to assist market participants comply with the new margin requirements, including the 2016 Phase One Credit Support Annex for Initial Margin (Security Interest– New York Law).