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EU rules on derivatives contracts

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EU rules on derivatives contracts


Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories



  • The European market infrastructure regulation (known as ‘EMIR’), lays down rules regarding over-the counter (OTC) derivative* contracts, central counterparties* and trade repositories*, in line with the G20 commitments made in Pittsburgh in September 2009.
  • EMIR aims at achieving the regulatory goals of reducing systemic risk, increasing transparency in the OTC market and preserving financial stability.


  • To increase transparency in the OTC market, the regulation provides that all information on all European derivative contracts must be reported to trade repositories and made accessible to supervisory authorities, including the European Securities and Markets Authority (ESMA).
  • To reduce counterparty credit risk*, the regulation sets out strict organisational, business conduct and prudential obligations for central counterparties (CCPs). Standard derivative contracts must be cleared through CCPs (see clearing*).
  • To reduce operational risk*, the regulation requires that electronic means must be used for the timely confirmation of the terms of OTC derivatives contracts.
  • The clearing* and reporting obligations apply to:
    • financial firms, e.g. banks and insurance firms,
    • non-financial firms, e.g. energy companies and airlines, which have large positions in OTC derivatives.

ESMA is responsible for identifying contracts that should be subject to the clearing obligation, that is, those that are standardised and must be cleared by CCPs. ESMA also supervises trade repositories*. The European Commission has adopted a number of measures, including technical standards on the basis of ESMA drafts, to implement the terms of the regulation. The technical standards, developed by ESMA, cover a range of topics, e.g. capital requirements of CCPs and the minimum data to be reported to trade repositories. The Commission has also adopted ‘equivalence’ decisions for the regulatory regimes for CCPs in certain non-EU countries.

In August 2015, the Commission adopted a delegated regulation that determines that some classes of OTC interest rate derivative contracts be cleared through central counterparties. It covers interest rate swaps denominated in euros, pounds sterling, Japanese yen or US dollars that have specific features, including

  • the index used as a reference for the derivative,
  • its maturity, and
  • the notional type (i.e. the nominal or face amount that is used to calculate payments made on the derivative).

On 5 June 2015, the European Commission adopted a delegated regulation in accordance with Article 85(2) of EMIR. This extends temporary exemption from central clearing requirements for Pension Scheme Arrangements (PSAs) until 16 August 2017. Under current arrangements, PSAs – which include all categories of pension funds – would have to source cash for central clearing. Given that PSAs hold neither significant amounts of cash nor highly liquid assets, imposing such a requirement on them would require very far-reaching and costly changes to their business model which could ultimately affect pensioners’ income.


It entered into force on 16 August 2012.


Over-the-counter (OTC) derivatives are generally negotiated privately. The information concerning them is consequently only available to the contracting parties, which can make it difficult to identify the nature and level of risks involved.


* A derivative is a financial contract linked to the future value or status of the underlying entity to which it refers. This entity can be, for example, an asset, index or interest rate.

* An over-the-counter derivative is a derivative not traded on an exchange but instead privately negotiated between two counterparties, for example, a bank and a manufacturer.

* Counterparty credit risk is a risk that a counterparty, i.e. the other party in a financial transaction, will default on payment.

* A central counterparty) (CCP) is an entity that comes between the two counterparties to a transaction, becoming the buyer to every seller and the seller to every buyer. A CCP’s main purpose is to manage the risk that could arise if one counterparty is not able to make the required payments when they are due, that is, defaults on the deal.

* A trade repository is a central data centre where details of derivatives transactions are reported. Trade repositories are commercial firms. There are global trade repositories for credit, interest rate and equity* OTC derivatives (see last key term).

* Clearing refers to all activities from the time a commitment is made for a transaction until it is settled.

* Operational risk means a risk of loss resulting from inadequate or failed internal processes or external events, e.g. fraud, human error, terrorism.

* An equity derivative is a particular class of derivative such as options or futures.


Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, pp. 1-59)

Successive amendments and corrections to Regulation (EU) No 648/2012 have been incorporated in the basic text. This consolidated version is for reference purposes only.


Commission Delegated Regulation (EU) 2015/2205 of 6 August 2015 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on the clearing obligation (OJ L 314, 1.12.2015, pp. 13-21)

Commission Delegated Regulation (EU) 2015/1515 of 5 June 2015 amending Regulation (EU) No 648/2012 of the European Parliament and of the Council as regards the extension of the transitional periods related to pension scheme arrangements (OJ L 239, 15.9.2015, pp. 63-64)

last update 14.01.2016