EMIR

What is EMIR?

The Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties (CCPs) and trade repositories (TRs) (EMIR) entered into force on 16 August 2012. The main purpose of this decision is to reduce the risks of OTC derivatives. Also regulation acts on derivatives transactions concluded on the regulated market.

What is OTC derivatives?

Regular payment or simple currency exchange are not OTC derivatives, and currency forwards, swaps and options are a part of the list of derivatives. Stocks and bonds are not included into derivatives list. Complete list of OTC derivatives can be found in the Financial Instruments Market Law (Finanšu instrumentu tirgus likums).

Who is affected by EMIR?

EMIR requirements are applied to legal entities registered in the EU entering into derivatives transactions. Requirements imposed by EMIR depend on the classification of the counterparty. EMIR requirements do not apply to private individuals.

What is non-financial counterparty?

EMIR classifies the counterparties which enter OTC derivatives transactions as follows:

  • ‘financial counterparty’ - an investment firm, a credit institution, an insurance undertaking, an assurance undertaking, a reinsurance undertaking, a UCITS and, where relevant, its management company, an institution for occupational retirement provision and an alternative investment fund managed by AIFMs;
  • ‘non-financial counterparty’ - an entity other than the ‘financial counterparty’;

What clients are affected by current resolution?

EMIR covers legal entities registered in EU which, for example:

  • have investment account and are dealing with futures, options or other derivatives;
  • have a long-term open fx position on their margin account (more than one day);
  • deal with currency exchange providing the value date is exceeding two working days (T+2 valid business days), including SWAP operations;
  • enter transactions with other derivatives;

Reporting obligations applied to all the participants of the transaction with derivatives.

What are the main EMIR requirements?

  • providing trade repository with report on each transaction with derivatives;
  • centralized clearing of all the transactions hitting the criteria;
  • application of measures to decrease any risks entering any transactions with OTC;

What is LEI number?

EU residents covered by EMIR are obliged to get LEI/pre-LEI ID (Legal Entity Identifier). It is a unique 20-unit combination of letters and numbers which allows to identify the entity entering any transactions with derivatives.

IMPORTANT! New requirements for transactions with financial instruments: Obligation to acquire LEI numbers.

Where to get a LEI number?

By following below mentioned links You can find lists of organizations providing services in receiving LEI/pre-LEI ID.

http://www.leiroc.org/publications/gls/lou_20131003_2.pdf

http://www.esma.europa.eu/page/Registered-Trade-Repositories

The procedure can take from 3 to 10 business days; registration/maintenance fees might be applied.

What is next after the transaction covered by EMIR requirements is entered?

The Bank generates a unique transaction identifier (UTI) and provides the Client with that by means of e-Norvik system the next valid Bank business day after entering the transaction. All the key parameters of the transaction are to be specified.

Upon receipt of UTI the Client provides the chosen trade repository (wich accepts reporting) with a.m. information within a.m. terms.

When EMIR comes into force?

EMIR partially came into force on August 15th 2012. The complete introduction of the present resolution took place on February 12th 2014. Starting from this date all the participants within derivative transaction are obliged to fulfill the requirements of the present resolution.

Whether the Client is obliged to provide information about earlier entered transactions to their trade repository?

Yes, the parties are obliged to provide information on all the transactions with derivatives which are concluded since August 16, 2012. After the Bank has its report done, the Client by means of e-Norvik shall receive the UTI list of the a.m. transactions which, in their turn, will be obliged to singly provide to the trade repository.

Value of the clearing thresholds as required

  • 1 billion EUR for credit derivatives contracts;
  • 1 billion EUR for equity derivative contracts;
  • 3 billion EUR for interest rate derivative contracts;
  • 3 billion EUR for foreign exchange derivative contracts;
  • 3 billion EUR for commodity derivative contracts and other;

We pay Your attention to the fact that You only bear the whole responsibility for calculation of Your minimum clearing limits as the Bank can not have all the information on Your overall transactions.

What measures are to be applied to decrease the risks with OTC derivatives?

  • Timely confirmation of transactions according to the Bank’s General Provisions;

Confirmation of OTC transactions between the Bank and the Client on behalf of the Client are taking place in the order specified in the Bank’s General Provisions of transactions and the Agreement on brokerage services. The UTI sent to the Client by means of e-Norvik is in turn the confirmation of such transaction on behalf of the Bank.

  • Reconciliation of portfolios;

For non-financial counterparties should be carried out:

(a) quarterly, if the number of outstanding transactions with OTC entered by You and the Bank exceeds 100 at any time during the quarter;

(b) annually, if the number of outstanding transactions with OTC entered by You and the Bank is 100 or less.

  • Dispute resolution;

In addition to general order of dispute resolution stated in Bank´s General provisions for transactions and in Agreement on brokerage services, if there is a dispute in respect of OTC derivatives contract entered into between you and the Bank, the Bank shall register the time within such dispute is not resolved, parties involved in such dispute, dispute amount and also hereby notifies you that if such dispute is not resolved within five Bank´s business days - also supreme Bank´s management shall be involved in dispute resolution. If dispute is in respect of such transaction which amount exceeds 15 million EUR and remains outstanding within 15 valid Bank working days, the Bank shall notify Financial and capital market commission (Latvia) about such dispute.

More information is available on ESMA (European Securities and Markets Authority) home page

"Frequently Asked Questions" ESMA