23.2.2013   

EN

Official Journal of the European Union

L 52/1

(1)

In order to allow flexibility, a counterparty should be able to delegate the reporting of a contract to the other counterparty or to a third party. Counterparties should also be able to agree to delegate reporting to a common third entity including a central counterparty (CCP), the latter submitting one report, including the relevant table of fields, to the trade repository. In these circumstances and in order to ensure data quality, the report should indicate that it is made on behalf of both counterparties and contain the full set of details that would have been reported had the contract been reported separately.

(2)

To avoid inconsistencies in the Common Data tables, each counterparty to a derivative contract should ensure that the Common Data reported is agreed between both parties to the trade. A unique trade identifier will help with the reconciliation of the data in the case that the counterparties are reporting to different trade repositories.

(3)

To avoid duplicate reporting and to reduce the reporting burden, where one counterparty or CCP reports on behalf of both counterparties, the counterparty or CCP should be able to send one report to the trade repository containing the relevant information.

(4)

Valuation of derivative contracts is essential to allow regulators to fulfil their mandates, in particular when it comes to financial stability. The mark to market or mark to model value of a contract indicates the sign and size of the exposures related to that contract, and complements the information on the original value specified in the contract.

(5)

Gathering information on the collateral pertaining to a particular contract is essential to ensuring the proper monitoring of exposures. To enable this, counterparties that collateralise their transactions should report such collateralisation details on a transaction level basis. Where collateral is calculated on the basis of net positions resulting from a set of contracts, and is therefore not posted on a transaction level basis but on a portfolio basis, counterparties should be able to report the portfolio using a unique code or numbering system as determined by the counterparty. That unique code should identify the specific portfolio over which the collateral is exchanged where the counterparty has more than one portfolio and should also ensure that a derivative contract can be linked to a particular portfolio over which collateral is being held.

(6)

This Regulation is based on the draft regulatory technical standards submitted by the European Securities and Markets Authority (ESMA) to the Commission and it reflects the relevance of the role of trade repositories to improve transparency of markets towards the public and regulators, the data to be reported to, collected by and made available by trade repositories depending on derivative class and the nature of the trade.

(7)

ESMA has consulted the relevant authorities and the members of the European System of Central Banks (ESCB) before submitting the draft regulatory technical standards on which this Regulation is based. In accordance with Article 10 of Regulation (EU) No 1095/2010, of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority) (3), ESMA has also conducted open public consultations on such draft regulatory technical standards, analysed the potential related costs and benefits and requested the opinion of the ESMA Securities and Markets Stakeholder Group established in accordance with Article 37 of that Regulation,

(a)

the details set out in Table 1 of the Annex which contains information relating to the counterparties to a contract;

(b)

the information set out in Table 2 of the Annex which contains details pertaining to the derivative contract concluded between the two counterparties.

23.2.2013   

EN

Official Journal of the European Union

L 52/11

(1)

A framework should be provided to encompass rules applicable to the clearing obligation, its application, possible exemptions and risk mitigation techniques to be established when clearing with a central counterparty (CCP) cannot take place. To ensure coherence between those provisions, which should enter into force at the same time, and to facilitate a comprehensive view and efficient access for stakeholders and in particular those subject to the obligations, it is desirable to include most of the regulatory technical standards required under Title II of Regulation (EU) No 648/2012 in a single Regulation.

(2)

In view of the global nature of the over the counter (OTC) derivatives market, this Regulation should take into account the relevant internationally agreed guidelines and recommendations on OTC derivatives market reforms and mandatory clearing as well as the related rules developed in other jurisdictions. In particular the framework for the determination of a clearing obligation takes into account the Mandatory Clearing requirements published by the International Organization of Securities Commissions. This will support, as much as possible, convergence with the approach in other jurisdictions.

(3)

In order to clearly identify a limited number of concepts stemming from Regulation (EU) No 648/2012, as well as to specify technical terms necessary for developing this technical standard, a number of terms should be defined.

(4)

An indirect clearing arrangement should not expose a CCP, clearing member, client or indirect client to additional counterparty risk and the assets and positions of the indirect client should benefit from an appropriate level of protection. It is therefore essential that any type of indirect clearing arrangements comply with minimum conditions for ensuring their safety. To that end, the parties involved in indirect clearing arrangements shall be subject to specific obligations. Such arrangements extend beyond the contractual relationship between indirect clients and the client of a clearing member that provides indirect clearing services.

(5)

Regulation (EU) No 648/2012 requires a CCP to be a designated system under Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (3). This implies that clearing members of CCPs should qualify as participants within the meaning of that Directive. Therefore to ensure an equivalent level of protection to indirect clients as granted to clients under Regulation (EU) No 648/2012, it is necessary to ensure that clients providing indirect clearing services are credit institutions, investment firms, or equivalent third country credit institutions or investment firms.

(6)

Indirect clearing arrangements should be established so as to ensure that indirect clients can obtain an equivalent level of protection as direct clients in a default scenario. Following the failure of a clearing member that facilitates an indirect clearing arrangement, indirect clients should be included in the transfer of client positions to an alternative clearing member under the portability requirements established by Articles 39 and 48 of Regulation (EU) No 648/2012. Appropriate safeguards against client failure should also exist within indirect clearing arrangements and should support transferring indirect client positions to an alternative provider of clearing services.

(7)

As indirect clearing arrangements may give rise to specific risks, all the parties included in an indirect clearing arrangement, including clearing members and CCPs, should routinely identify, monitor and manage any material risks arising from the arrangement. Appropriate sharing of information between clients that provide indirect clearing services and clearing members that facilitate those services is especially important in this context. Clearing members should use information provided by clients for risk management purposes only and should prevent the misuse of commercially sensitive information, including through the use of effective barriers between different divisions of a financial institution to avoid conflicts of interest.

(8)

When it authorises a CCP to clear a class of OTC derivatives, the competent authority is required to notify the European Securities and Markets Authority (ESMA). This notification should include detailed information which is necessary for ESMA to carry out its assessment process, including information on liquidity and volume of the relevant class of OTC derivatives. Although the information flows from the competent authority to ESMA, it is the CCP having requested the authorisation that should initially provide the required information to the competent authorities which may then complement it.

(9)

Although all information to be included in the notification from the competent authority to ESMA for the purpose of the clearing obligation may not always be available, especially for new products, estimates that are available should be provided, including a clear indication of the assumptions made. The notification should also contain information pertaining to the counterparties, such as the type and number of counterparties, the steps required to start clearing with a CCP, their legal and operational capacity or their risk management framework in order to allow ESMA to assess the ability of the active counterparties to comply with the clearing obligation without disruption to the market.

(10)

The notification from the competent authority to ESMA should contain information on the degree of standardisation, liquidity and price availability, in order for ESMA to assess whether a class of OTC derivatives should be subject to the clearing obligation. The criteria related to the standardisation of the contractual terms and operational processes of a relevant class of OTC are an indicator of the standardisation of the economic terms of a class of OTC derivatives as it is only when such economic terms are standardised that the contractual terms and operational processes can be standardised. The criteria related to liquidity and price availability are assessed by ESMA with different considerations than the assessment made by the competent authority while authorising the CCP. Liquidity in this context is assessed on a wider perspective and differs from the liquidity after the clearing obligation would apply. In particular, the fact that a contract is sufficiently liquid to be cleared by one CCP does not necessarily imply that it should be subject to the clearing obligation. ESMA’s assessment should not replicate or duplicate the review already performed by the competent authority.

(11)

The information to be provided by the competent authority for the purpose of the clearing obligation should enable ESMA to assess the availability of pricing information. In this respect, the access of a CCP to pricing information at one point in time does not mean that market participants could access pricing information in the future. As a result, the fact that a CCP has access to the necessary price information to manage the risks of clearing derivative contracts within a certain class of OTC derivatives does not automatically imply that this class of OTC derivatives should be subject to the clearing obligation.

(12)

The level of details available in the register of classes of OTC derivative contracts subject to the clearing obligation depends on the relevance of these details to identify each class of OTC derivative contracts. As a result the level of details in the register may differ for different classes of OTC derivative contracts.

(13)

Allowing access by multiple CCPs to a trading venue could broaden participant access to that venue and therefore enhance overall liquidity. It is nonetheless necessary in such circumstances to specify the notion of liquidity fragmentation within a venue in the case that it may threaten the smooth and orderly functioning of markets for the class of financial instruments for which the request is made.

(14)

The assessment of the competent authority of the trading venue to which a CCP has requested access and of the competent authority of the CCP should be based on the mechanisms available to prevent liquidity fragmentation within a trading venue.

(15)

To prevent liquidity fragmentation all participants in a trading venue should be able to clear all transactions executed between them. However, it would not be proportionate to require all clearing members of an existing CCP to become also clearing members of any new CCP serving such trading venue. Where there are entities which are clearing members of both CCPs, they may facilitate the transfer and clearing of transactions executed by market participants separately served by the two CCPs, to limit the risk of liquidity fragmentation. Nevertheless, it is important that a request to access a trading venue by a CCP does not fragment liquidity in a manner that would increase the risks to which the existing CCP is exposed.

(16)

According to Article 8(4) of Regulation (EU) No 648/2012, a request to access a trading venue by a CCP should not require interoperability, and, consequently, this Regulation should not prescribe interoperability as the only way to resolve liquidity fragmentation. However, this Regulation should not preclude CCPs from entering into such an arrangement on a voluntary basis if the necessary conditions for its establishment are fulfilled.

(17)

In order to establish which OTC derivative contracts are objectively measurable as reducing risks directly relating to commercial activity or treasury financing activity, non-financial counterparties should apply one of the criteria provided for in this Regulation including the accounting definition based on International Financial Reporting Standards (IFRS) rules. The accounting definition can be used by counterparties even though they do not apply IFRS rules. For those non-financial counterparties that may use local accounting rules, it is expected that most of the contracts classified as hedging under such local accounting rules would fall within the general definition of contracts reducing risks directly related to commercial activity or treasury financing activity provided for in this Regulation.

(18)

In some circumstances, it may not be possible to hedge a risk by using a directly related derivative contract, a contract with exactly the same underlying and settlement date as the risk being covered. In such case, the non-financial counterparty may use proxy hedging through a closely correlated instrument to cover its exposure such as an instrument with a different but very close underlying in terms of economic behaviour. Additionally, certain groups of non-financial counterparties which enter into OTC derivative contracts, via a single entity, to hedge their risk in relation to the overall risks of the group may use macro or portfolio hedging. Those macro, portfolio or proxy hedging OTC derivative contracts may constitute hedging for the purpose of this Regulation and should be considered against the criteria for establishing which OTC derivative contracts are objectively reducing risks.

(19)

A risk may evolve over time and in order to adapt to the evolution of the risk, OTC derivative contracts initially executed for reducing risk related to commercial or treasury financing activity may have to be offset through the use of additional OTC derivative contracts. As a result, hedging of a risk may be achieved by a combination of OTC derivative contracts including offsetting OTC derivative contracts that close out those OTC derivative contracts that have become unrelated to the commercial or treasury financing risk.

(20)

The range of risks directly related to commercial and treasury financing activities is very wide and varies across different economic sectors. Risks related to commercial activities are typically attached to inputs to the production function of a company as well as products and services that it sells or provides. Treasury financing activities typically relate to the management of the short- and long-term funding of an entity, including its debt, and the ways it invests the financial resources it generates or holds, including cash management. Treasury financing and commercial activities can be affected by common sources of risks, such as foreign exchange, commodity prices, inflation or credit risk. Given that OTC derivatives are concluded to hedge a particular risk, when analysing the risks directly related to commercial or treasury financing activities, those risks should be defined in a consistent manner covering both activities. In addition, separating the two concepts might have unintended consequences, given that depending on the sector in which non-financial counterparties operate, a particular risk would be hedged under treasury financing or commercial activity.

(21)

While the clearing thresholds should be set taking into account the systemic relevance of the related risks, it is important to consider that the OTC derivatives that reduce risks are excluded from the computation of the clearing thresholds and that the clearing thresholds allow an exception to the principle of the clearing obligation for those OTC derivative contracts which may be considered as not concluded for hedging purposes. More specifically, the value of the clearing thresholds should be reviewed periodically and should be determined by class of OTC derivative contracts. The classes of OTC derivatives determined for the purpose of the clearing thresholds may be different from the classes of OTC derivatives for the purpose of the clearing obligation. In setting the value of the clearing thresholds, due consideration should be given to the need to define a single indicator reflecting the systemic relevance of the sum of net positions and exposures per counterparty and per asset class of OTC derivatives. Furthermore, the clearing thresholds being used by non-financial counterparties should be simple to implement.

(22)

The determination of the value of the clearing thresholds should take into account the systemic relevance of the sum of net positions and exposures per counterparty and per class of OTC derivatives in accordance with Regulation (EU) No 648/2012. However, it should be considered that these net positions and exposures are different from a net exposure across counterparties and across asset class. Furthermore, in accordance with Regulation (EU) No 648/2012 these net positions should be added up in order to determine the data to be considered for the setting of the clearing thresholds. It is the total gross sum resulting from the addition of these net positions that should be considered when setting the clearing thresholds. The gross notional value resulting from that addition should be used as a reference for setting the clearing thresholds.

(23)

In addition, the structure of the OTC derivatives activity of non-financial counterparties usually leads to a low level of netting as OTC derivative contracts are concluded in the same direction. As a result, the difference between the sum of the net positions and exposures per counterparty and per class of OTC derivatives would be very close to the gross value of contracts. Therefore, and in order to reach the objective of simplicity, the gross value of OTC derivative contracts should be used as a valid proxy of the measure to be taken into account in the determination of the clearing threshold.

(24)

Given that non-financials that do not exceed the clearing threshold are not required to mark-to-market their OTC derivative contracts, it would not be reasonable to use this measure to determine the clearing thresholds as this would impose a heavy burden on non-financial counterparties which would not be proportionate with the risk addressed. Instead, using the notional value of OTC derivative contracts would allow a simple approach which is not exposed to external events for non-financials.

(25)

The excess of one of the values set for a class of OTC derivatives should trigger the excess of the clearing threshold for all classes, given that OTC derivative contracts reducing risks are excluded from the calculation of the clearing threshold, the consequences of exceeding the clearing threshold are not only related to the clearing obligation but extend to risk mitigation techniques, and the approach for the relevant obligations under Regulation (EU) No 648/2012 applicable to non-financial counterparties should be simple in view of the non-sophisticated nature of most of them.

(26)

For those OTC derivative contracts that are not cleared, risk mitigation techniques such as timely confirmation should apply. The confirmation of OTC derivative contracts may refer to one or more master agreements, master confirmation agreements, or other standard terms. It may take the form of an electronically executed contract or a document signed by both counterparties.

(27)

It is essential that counterparties confirm the terms of their transactions as soon as possible following the execution of the transaction, especially when the transaction is electronically executed or processed, in order to ensure common understanding and legal certainty of the terms of the transaction. Counterparties entering into non-standard or complex OTC derivative contracts, in particular, may need to implement tools in order to comply with the requirement to confirm their OTC derivative contracts in a timely manner. The timely confirmation would also anticipate that relevant market practices would evolve in this area.

(28)

To further mitigate risks, portfolio reconciliation enables each counterparty to undertake a comprehensive review of a portfolio of transactions as seen by its counterparty in order to promptly identify any misunderstandings of key transaction terms. Such terms should include the valuation of each transaction and may also include other relevant details such as the effective date, the scheduled maturity date, any payment or settlement dates, the notional value of the contract and currency of the transaction, the underlying instrument, the position of the counterparties, the business day convention and any relevant fixed or floating rates of the OTC derivative contract.

(29)

In view of the different risk profiles and in order for the portfolio reconciliation to be a proportionate risk mitigation technique, the frequency of the reconciliation and size of the portfolio to consider should be different depending on the nature of the counterparties. More demanding requirements should apply to both financial counterparties and non-financial counterparties that exceed the clearing threshold while lower reconciliation frequency should apply for non-financial counterparties that would not exceed the clearing threshold irrespective of the category of its counterparty who would also benefit from this less frequent reconciliation for that part of its portfolio.

(30)

Portfolio compression may also be an efficient tool for risk mitigation purposes depending on circumstances such as the size of the portfolio with a counterparty, the maturity, purpose and degree of standardisation of OTC derivative contracts. Financial counterparties and non-financial counterparties that have a portfolio of OTC derivative contracts not cleared by a CCP above the level determined in this Regulation should have procedures in place in order to analyse the possibility to use portfolio compression that would allow them to reduce their counterparty credit risk.

(31)

Dispute resolution aims at mitigating risks stemming from contracts that are not centrally cleared. When entering into OTC derivative transactions with one another, counterparties should have an agreed framework for resolving any related dispute that may arise. The framework should refer to resolution mechanisms such as third party arbitration or market polling mechanism. The framework intends to avoid unresolved disputes escalating and exposing counterparties to additional risks. Disputes should be identified, managed and appropriately disclosed.

(32)

For the purpose of specifying market conditions that prevent marking-to-market, it is necessary to specify inactive markets. A market may be inactive for several reasons including when there are no regularly occurring market transactions on an arm’s length basis, where an arm’s length basis should have the same meaning as for accounting purposes.

(33)

This Regulation applies to financial counterparties and non-financial counterparties above the clearing threshold and takes into consideration Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on capital adequacy of investment firms and credit institutions (4), which also sets requirements to be complied with when marking-to-model.

(34)

Although the design of the model used for the marking-to-model may be developed internally or externally, in order to ensure appropriate accountability, the approval of the model is the responsibility of the board of directors or the delegated committee of such board.

(35)

When counterparties can apply the intragroup exemption following their notification to the competent authorities but without waiting for the end of the non-objection period by such competent authorities, it is important to ensure that the competent authorities get timely, appropriate and sufficient information in order to assess whether it should object to the use of the exemption.

(36)

The anticipated size, volumes and frequency of intragroup OTC derivative contracts may be determined on the basis of the historical intragroup transactions of the counterparties as well as the anticipated model and activity expected for the future.

(37)

When counterparties apply an intragroup exemption, they should publicly disclose information in order to ensure transparency in respect of market participants and potential creditors. This is particularly important for the potential creditors of the counterparties in terms of assessing risks. The disclosure aims at preventing misperception that OTC derivative contracts are centrally cleared or subject to risk mitigation techniques when it is not the case.

(38)

The timeframe to achieve timely confirmation requires adaptation efforts including changes of market practice and enhancement of IT systems. Given that the pace of adaptation to compliance may differ depending on the category of counterparties and the asset class of OTC derivatives, setting progressive dates of application which cater for these differences would allow enhancing the timeframe of the confirmation for those counterparties and products that could be ready more rapidly.

(39)

The standards set for portfolio reconciliation, portfolio compression or dispute resolution would require counterparties to set up procedures, policies, processes, and amend documentation which would require time. The entry into force of the related requirements should be delayed in order to grant time for the counterparties to take the necessary steps for compliance purposes.

(40)

This Regulation is based on the draft regulatory technical standards submitted by the European Securities and Markets Authority to the Commission.

(41)

In accordance with Article 10 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (5), ESMA has conducted open public consultations on the draft regulatory technical standards, analysed the potential related costs and benefits and requested the opinion of the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010,

(a)

‘indirect client’ means the client of a client of a clearing member;

(b)

‘indirect clearing arrangement’ means the set of contractual relationships between the central counterparty (CCP), the clearing member, the client of a clearing member and indirect client that allows the client of a clearing member to provide clearing services to an indirect client;

(c)

‘confirmation’ means the documentation of the agreement of the counterparties to all the terms of an over the counter (OTC) derivative contract.

(a)

keep separate records and accounts enabling each client to distinguish in accounts with the clearing member the assets and positions of the client from those held for the accounts of its indirect clients;

(b)

keep separate records and accounts enabling each client to distinguish in accounts with the clearing member the assets and positions held for the account of an indirect client from those held for the account of other indirect clients.

(a)

the identification of the class of OTC derivative contracts;

(b)

the identification of the OTC derivative contracts within the class of OTC derivative contracts;

(c)

other information to be included in the public register in accordance with Article 8;

(d)

any further characteristics necessary to distinguish OTC derivative contracts within the class of OTC derivative contracts from OTC derivative contracts outside that class;

(e)

evidence of the degree of standardisation of the contractual terms and operational processes for the relevant class of OTC derivative contracts;

(f)

data on the volume of the class of OTC derivative contracts;

(g)

data on the liquidity of the class of OTC derivative contracts;

(h)

evidence of availability to market participants of fair, reliable and generally accepted pricing information for contracts in the class of OTC derivative contracts;

(i)

evidence of the impact of the clearing obligation on availability to market participants of pricing information.

(a)

data relevant for assessing the expected volume of the class of OTC derivative contracts if it becomes subject to the clearing obligation;

(b)

evidence of the ability of the CCP to handle the expected volume of the class of OTC derivative contracts if it becomes subject to the clearing obligation and to manage the risk arising from the clearing of the relevant class of OTC derivative contracts, including through client or indirect client clearing arrangements;

(c)

the type and number of counterparties active and expected to be active within the market for the class of OTC derivative contracts if it becomes subject to the clearing obligation;

(d)

an outline of the different tasks to be completed in order to start clearing with the CCP, together with the determination of the time required to fulfil each task;

(e)

information on the risk management, legal and operational capacity of the range of counterparties active in the market for the class of OTC derivative contracts if it becomes subject to the clearing obligation.

(a)

the number of transactions;

(b)

the total volume;

(c)

the total open interest;

(d)

the depth of orders including the average number of orders and of requests for quotes;

(e)

the tightness of spreads;

(f)

the measures of liquidity under stressed market conditions;

(g)

the measures of liquidity for the execution of default procedures.

(a)

whether the contractual terms of the relevant class of OTC derivative contracts incorporate common legal documentation, including master netting agreements, definitions, standard terms and confirmations which set out contract specifications commonly used by counterparties;

(b)

whether the operational processes of that relevant class of OTC derivative contracts are subject to automated post-trade processing and lifecycle events that are managed in a common manner according to a timetable which is widely agreed among counterparties.

(a)

whether the margins or financial requirements of the CCP would be proportionate to the risk that the clearing obligation intends to mitigate;

(b)

the stability of the market size and depth in respect of the product over time;

(c)

the likelihood that market dispersion would remain sufficient in the event of the default of a clearing member;

(d)

the number and the value of the transactions.

(a)

the asset class of OTC derivative contracts;

(b)

the type of OTC derivative contracts within the class;

(c)

the underlyings of OTC derivative contracts within the class;

(d)

for underlyings which are financial instruments, an indication of whether the underlying is a single financial instrument or issuer or an index or portfolio;

(e)

for other underlyings an indication of the category of the underlying;

(f)

the notional and settlement currencies of OTC derivative contracts within the class;

(g)

the range of maturities of OTC derivative contracts within the class;

(h)

the settlement conditions of OTC derivative contracts within the class;

(i)

the range of payment frequency of OTC derivative contracts within the class;

(j)

the product identifier of the relevant class of OTC derivative contracts;

(k)

any other characteristic required to distinguish one contract in the relevant class of OTC derivative contracts from another.

(a)

the identification code, in accordance with Article 3 of Implementing Commission Regulation (EU) No 1247/2012 (6);

(b)

the full name;

(c)

the country of establishment;

(d)

the competent authority designated in accordance with Article 22 of Regulation (EU) No 648/2012.

(a)

the identification of the categories of counterparties to which each phase-in period applies;

(b)

any other condition required pursuant to the regulatory technical standards adopted under Article 5(2) of Regulation (EU) No 648/2012, in order for the phase-in period to apply.

(a)

the identification of the CCP;

(b)

the asset class of OTC derivative contracts that are notified;

(c)

the type of OTC derivative contracts;

(d)

the date of the notification;

(e)

the identification of the notifying competent authority.

(a)

at least one CCP in common;

(b)

clearing arrangements established by the CCPs.

(a)

it covers the risks arising from the potential change in the value of assets, services, inputs, products, commodities or liabilities that the non-financial counterparty or its group owns, produces, manufactures, processes, provides, purchases, merchandises, leases, sells or incurs or reasonably anticipates owning, producing, manufacturing, processing, providing, purchasing, merchandising, leasing, selling or incurring in the normal course of its business;

(b)

it covers the risks arising from the potential indirect impact on the value of assets, services, inputs, products, commodities or liabilities referred to in point (a), resulting from fluctuation of interest rates, inflation rates, foreign exchange rates or credit risk;

(c)

it qualifies as a hedging contract pursuant to International Financial Reporting Standards (IFRS) adopted in accordance with Article 3 of Regulation (EC) No 1606/2002 of the European Parliament and of the Council (7).

(a)

EUR 1 billion in gross notional value for OTC credit derivative contracts;

(b)

EUR 1 billion in gross notional value for OTC equity derivative contracts;

(c)

EUR 3 billion in gross notional value for OTC interest rate derivative contracts;

(d)

EUR 3 billion in gross notional value for OTC foreign exchange derivative contracts;

(e)

EUR 3 billion in gross notional value for OTC commodity derivative contracts and other OTC derivative contracts not provided for under points (a) to (d).

(a)

for credit default swaps and interest rate swaps that are concluded up to and including 28 February 2014, by the end of the second business day following the date of execution of the OTC derivative contract;

(b)

for credit default swaps and interest rate swaps that are concluded after 28 February 2014, by the end of the business day following the date of execution of the OTC derivative contract;

(c)

for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded up to and including 31 August 2013, by the end of the third business day following the date of execution of the derivative contract;

(d)

for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded after 31 August 2013 up to and including 31 August 2014, by the end of the second business day following the date of execution of the derivative contract;

(e)

for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded after 31 August 2014, by the end of the business day following the date of execution of the derivative contract.

(a)

for credit default swaps and interest rate swaps that are concluded up to and including 31 August 2013, by the end of the fifth business day following the date of execution of the OTC derivative contract;

(b)

for credit default swaps and interest rate swaps that are concluded after 31 August 2013 up to and including 31 August 2014, by the end of the third business day following the date of execution of the OTC derivative contract;

(c)

for credit default swaps and interest rate swaps that are concluded after 31 August 2014, by the end of the second business day following the date of execution of the OTC derivative contract;

(d)

for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded up to and including 31 August 2013, by the end of the seventh business day following the date of execution of the derivative contract;

(e)

for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded after 31 August 2013 up to and including 31 August 2014, by the end of the fourth business day following the date of execution of the derivative contract;

(f)

for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded after 31 August 2014, by the end of the second business day following the date of execution.

(a)

for a financial counterparty or a non-financial counterparty referred to in Article 10 of Regulation (EU) No 648/2012:

(b)

for a non-financial counterparty not referred to in Article 10 of Regulation (EU) No 648/2012:

(a)

the identification, recording, and monitoring of disputes relating to the recognition or valuation of the contract and to the exchange of collateral between counterparties. Those procedures shall at least record the length of time for which the dispute remains outstanding, the counterparty and the amount which is disputed;

(b)

the resolution of disputes in a timely manner with a specific process for those disputes that are not resolved within five business days.

(a)

when the market is inactive;

(b)

where the range of reasonable fair values estimates is significant and the probabilities of the various estimates cannot reasonably be assessed.

(a)

incorporates all factors that counterparties would consider in setting a price, including using as much as possible marking-to-market information;

(b)

is consistent with accepted economic methodologies for pricing financial instruments;

(c)

is calibrated and tested for validity using prices from any observable current market transactions in the same financial instrument or based on any available observable market data;

(d)

is validated and monitored independently, by another division than the division taking the risk;

(e)

is duly documented and approved by the board of directors as frequently as necessary, following any material change and at least annually. This approval may be delegated to a committee.

(a)

the legal counterparties to the transactions including their identifiers in accordance with Article 3 of Implementing Regulation (EU) No 1247/2012;

(b)

the corporate relationship between the counterparties;

(c)

details of the supporting contractual relationships between the parties;

(d)

the category of intragroup transaction as specified under paragraph 1 and points (a) to (d) of paragraph 2 of Article 3 of Regulation (EU) No 648/2012;

(e)

details of the transactions for which the counterparty is seeking the exemption, including:

(a)

within one month of the receipt of the notification with respect to a notification under Article 11(7) or (9) of Regulation (EU) No 648/2012;

(b)

within one month from the decision being submitted to the counterparty with respect to a decision of the competent authority under Article 11(6), (8) or (10) of Regulation (EU) No 648/2012.

(a)

the information listed in Article 18;

(b)

whether there is a positive or a negative decision;

(c)

in the case of a positive decision:

(d)

in the case of a negative decision:

(a)

the legal counterparties to the transactions including their identifiers in accordance with Article 3 of Implementing Regulation (EU) No 1247/2012;

(b)

the relationship between the counterparties;

(c)

whether the exemption is a full exemption or a partial exemption;

(d)

the notional aggregate amount of the OTC derivative contracts for which the intragroup exemption applies.

23.2.2013   

EN

Official Journal of the European Union

L 52/25

(1)

Rules should be laid down specifying the information to be provided to the European Securities and Markets Authority (ESMA) as part of an application for registration as a trade repository.

(2)

Any person applying for registration as a trade repository should provide information on the structure of its internal controls and the independence of its governing bodies, in order to enable ESMA to assess whether the corporate governance structure ensures the independence of the trade repository and whether that structure and its reporting routines are adequate.

(3)

ESMA, as established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority) (3), is responsible for the registration and supervision of trade repositories under Title VI of Regulation (EU) No 648/2012. For the purpose of enabling ESMA to assess the good repute, as well as the experience and skills of the prospective trade repository senior management, an applicant trade repository should provide the relevant information to perform such an assessment.

(4)

The applicant trade repository should provide information to ESMA to demonstrate that it has the necessary financial resources at its disposal for the performance of its functions on an on-going basis and adequate business continuity arrangements.

(5)

Although when a trade repository operates through branches, these are not separate legal persons, separate information on branches should be provided in order to enable ESMA to clearly identify the position of the branches in the organisational structure of the trade repository, assess the fitness for duty and appropriateness of the senior management of the branches, and evaluate whether the control mechanisms, compliance and other functions in place are considered to be robust and enough to identify, evaluate and manage the branches’ risks in an appropriate manner.

(6)

It is important for an applicant to provide ESMA with information on ancillary services, or other business lines that the trade repository offers outside its core activity of derivatives reporting, particularly as regards its central core activity of regulatory reporting.

(7)

In order for ESMA to assess the continuity and orderly function of an applicant trade repository’s technological systems, that applicant should provide ESMA with descriptions of those relevant technological systems and how they are managed. The applicant should also describe any outsourcing arrangements that are relevant for its services.

(8)

The fees associated with the services provided by trade repositories are important information for enabling market participants to make an informed choice and should therefore form part of the application for registration as trade repository.

(9)

Given that market participants and regulators rely on the data maintained by trade repositories, strict operational and record-keeping requirements should be clearly distinguishable in a trade repository’s application for registration.

(10)

The risk management models associated with the services provided by a trade repository are a necessary item in its application for registration so as to enable market participants to make an informed choice.

(11)

In order to secure full access to the trade repository, third party service providers are granted non-discriminatory access to information maintained by the trade repository, on the condition that the entity providing the data and the relevant counterparties have provided their consent. An applicant trade repository should therefore provide ESMA with information about its access policies and procedures.

(12)

In order to carry out its authorisation duties effectively, ESMA should receive all information from trade repositories, related third parties and third parties to whom the trade repositories have outsourced operational functions and activities. Such information is necessary to assess or complete the assessment of the application for registration and the documentation therein.

(13)

This Regulation is based on the draft regulatory technical standards submitted by ESMA to the Commission.

(14)

In accordance with Article 10 of Regulation (EU) No 1095/2010, ESMA has conducted open public consultations on the draft regulatory technical standards, analysed the potential related costs and benefits and requested the opinion of the ESMA Securities and Markets Stakeholder Group established in accordance with Article 37 of that Regulation,

(a)

the corporate name of the applicant and legal address within the Union;

(b)

an excerpt from the relevant commercial or court register, or other forms of certified evidence of the place of incorporation and scope of business activity of the applicant, valid at the application date;

(c)

information on the classes of derivatives for which the applicant wishes to be registered;

(d)

the articles of incorporation and, where relevant, other statutory documentation stating that the applicant is to conduct trade repository services;

(e)

the minutes from the meeting where the board approved the application;

(f)

the name and contact details of the person(s) responsible for compliance, or any other staff involved in compliance assessments for the applicant;

(g)

the programme of operations, including indications of the location of the main business activities;

(h)

the identification of any subsidiaries and, where relevant, the group structure;

(i)

any service, other than the trade repository function, that the applicant intends to provide;

(j)

any information on any pending judicial, administrative, arbitration or any other litigation proceedings irrespective of their type, that the applicant may be party to, particularly as regards tax and insolvency matters and where significant financial or reputational costs may be incurred, or any non-pending proceedings, that may still have any material impact on trade repository costs.

(a)

an indication of the person responsible for the approval and maintenance of the policies and procedures;

(b)

a description of how compliance with the policies and procedures will be ensured and monitored, and the person responsible for compliance in that regard;

(c)

a description of the measures to adopt in the event of a breach of policies and procedures;

(d)

an indication of the procedure for reporting to ESMA any material breach of policies or procedures which may result in a breach of the conditions for initial registration.

(a)

a list containing the name of each person or entity who directly or indirectly holds 5 % or more of the applicants capital or of its voting rights or whose holding makes it possible to exercise a significant influence over the applicants management;

(b)

a list of any undertakings in which a person referred to in point (a) holds 5 % or more of the capital or voting rights or over whose management they exercise a significant influence.

(a)

identify the legal address;

(b)

indicate whether the parent undertaking is authorised or registered and subject to supervision, and when this is the case, state any reference number and the name of the responsible supervisory authority.

(a)

the applicants’ internal control policies and procedures;

(b)

the monitoring and evaluation of the adequacy and effectiveness of the applicant’s systems;

(c)

the control and safeguard for the applicant’s information processing systems;

(d)

the internal bodies in charge of the evaluation of the findings.

(a)

an explanation of how its internal audit methodology is developed and applied taking into account the nature of the applicant’s activities, complexities and risks;

(b)

a work plan for three years following the date of application.

(a)

a description of the roles of the persons responsible for compliance and of any other staff involved in the compliance assessments, including how the independence of the compliance function from the rest of the business will be ensured;

(b)

the internal policies and procedures designed to ensure that the applicant, including its managers and employees, comply with all the provisions of Regulation (EU) No 648/2012, including a description of the role of the board and senior management;

(c)

where available, the most recent internal report prepared by the persons responsible for compliance or any other staff involved in compliance assessments within the applicant.

(a)

a copy of the curriculum vitae in order to enable the assessment on the adequate experience and knowledge to adequately perform their responsibilities;

(b)

details regarding any criminal convictions in connection with the provision of financial or data services or in relation to acts of fraud or embezzlement, notably via an official certificate if available within the relevant Member State;

(c)

a self-declaration of good repute in relation to the provision of a financial or data service, where each member of the senior management and the board states whether they:

(d)

a declaration of any potential conflicts of interests that the senior management and the members of the board may have in performing their duties and how these conflicts are managed.

(a)

a copy of the remuneration policy for the senior management, board members and the staff employed in risk and control functions of the applicant;

(b)

a description of the measures put in place by the applicant to mitigate the risk of over-reliance on any individual employees.

(a)

a general list of the staff employed including their role and qualifications per role;

(b)

a specific description of the information technology staff employed for providing the trade repository services including their role and qualifications of each individual;

(c)

a description of the roles and qualifications of each individual who is responsible for internal audit, internal controls, compliance, risk assessment and internal review;

(d)

the identification of the dedicated staff members and those members of the staff that are operating under an outsourcing arrangement;

(e)

details regarding the training and development relevant to the trade repository business, including any examination or other type of formal assessment required for staff regarding the conduct of trade repository activities.

(a)

a complete set of financial statements, prepared in conformity with international standards adopted in accordance with Article 3 of Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (4);

(b)

where the financial statements of the applicant are subject to statutory audit within the meaning given in Article 2(1) of the Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts (5), the financial reports shall include the audit report on the annual and consolidated financial statements;

(c)

if the applicant is audited, the name and the national registration number of the external auditor;

(d)

a financial business plan contemplating different business scenarios for the trade repository services, over a minimum three years reference period.

(a)

the pro-forma statement demonstrating proper resources and expected business status in six months after registration is granted;

(b)

an interim financial report where the financial statements are not yet available for the requested period of time;

(c)

a statement of financial position, such as a balance sheet, income statement, changes in equity and of cash flows and notes comprising a summary of accounting policies and other explanatory notes.

(a)

an indication of future plans for the establishment of subsidiaries and their location;

(b)

a description of the business activities which the applicant plans to carry out, specifying the activities of any subsidiaries or branches.

(a)

policies and procedures with respect to the identification, management and disclosure of conflicts of interest and a description of the process used to ensure that the relevant persons are aware of the policies and procedures;

(b)

any other measures and controls put in place to ensure the requirements referred to in point (a) on conflicts of interest management are met.

(a)

for illegitimate purposes;

(b)

for disclosure of confidential information;

(c)

not permitted for commercial use.

(a)

the systems and user facilities developed by the applicant in order to provide services to the clients, including a copy of any user manual and internal procedures;

(b)

the investment and renewal policies on information technology resources of the applicant;

(c)

outsourcing arrangements entered into by the applicant, together with the methods employed to monitor the service level of the outsourced functions and a copy of the contracts governing such arrangements.

(a)

the ancillary services that the applicant, or its parent group, performs and a description of any agreement that the trade repository may have with companies offering trading, post-trading, or other related services, as well as copies of such agreements;

(b)

the procedures and policies that will ensure the operational separation between the applicant’s trade repository services and other business lines, including in the case that a separate business line is run by the trade repository, a company belonging to its holding company, or any other company within which it has a material agreement in the context of the trading or post-trading chain or business line.

(a)

the access policies and procedures pursuant to which users access data in a trade repository including any process by which users may need to amend or modify registered contracts;

(b)

a copy of the terms and conditions which determine the user’s rights and obligations;

(c)

a description of the different categories of access available to users if more than one;

(d)

the access policies and procedures pursuant to which other services providers may have non-discriminatory access to information maintained by the trade repository where the relevant counterparties have provided their consent.

(a)

the compliance of the reporting counterparty or submitting entity with the reporting requirements;

(b)

the correctness of the information reported;

(c)

that data can be reconciled between trade repositories if counterparties report to different trade repositories.

(a)

pricing policy, including any existing discounts and rebates and conditions to benefit from such reductions;

(b)

fee structure for providing any ancillary services including the estimated cost of the trade repository services and ancillary services, along with the details of the methods used to account the separate cost that the applicant may incur when providing trade repository services and ancillary services;

(c)

methods used in order to make the information available for clients, notably reporting entities, and prospective clients, including a copy of the fee structure where trade repository services and ancillary services shall be unbundled.

(a)

a detailed description of the resources available and procedures designed to identify and mitigate operational risk and any other material risk to which the applicant is exposed to, including a copy of any relevant manuals and internal procedures;

(b)

a description of the liquid net assets funded by equity to cover potential general business losses in order to continue providing services as a going concern, and an assessment of the sufficiency of its financial resources with the aim of covering the operational costs of a wind-down or reorganisation of the critical operations and services over at least a six month period;

(c)

the applicant’s business continuity plan and an indication of the policy for updating the plan. In particular, the plan shall include:

(d)

a description of the arrangements for ensuring the applicant’s trade repository activities in case of disruption and the involvement of trade repository users and other third parties in them.

(a)

a timely and accurate registration of the information reported;

(b)

that the data is maintained both online and offline;

(c)

that the data is adequately copied for business continuity purposes.

(a)

a description of the resources, methods and channels that the trade repository will employ in order to facilitate the access to the data contained therein to the public in accordance with Article 81(1) of Regulation (EU) No 648/2012, and the frequency of updates, along with a copy of the specific manuals and internal policies;

(b)

a description of the resources, methods and facilities that the trade repository will employ in order to facilitate the access to its information to the relevant authorities in accordance with Article 81(3) of Regulation (EU) No 648/2012, the frequency of the update and the controls and verifications that the trade repository may establish for the access filtering process, along with a copy of the specific manuals and internal procedures;

(c)

a description of the resources, methods and channels that the trade repository will employ in order to facilitate the access to its information to counterparties to contracts in accordance with Article 80(5) of Regulation (EU) No 648/2012 and the frequency of updates, along with a copy of the specific manuals and internal policies.

23.2.2013   

EN

Official Journal of the European Union

L 52/33

(1)

It is essential to clearly identify relevant contracts and their respective counterparties. Following a functional approach, entities accessing data held by trade repositories should be considered according to the competences they have and the functions they perform.

(2)

The European Securities and Markets Authority (ESMA) should have access to all the transaction level data held by trade repositories, for the purpose of trade repository supervision, to be able to make information requests, take appropriate supervisory measures and also monitor whether registration as a trade repository should be kept or withdrawn.

(3)

Given its responsibilities under Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority) (3) and Regulation (EU) No 648/2012, ESMA should be given access on different mandates. The access to data by individual staff members of ESMA should be in line with each of those specific mandates.

(4)

The European Systemic Risk Board (ESRB), ESMA and the relevant members of the European System of Central Banks (ESCB), including some national central banks and relevant Union securities and markets authorities, have a mandate for monitoring and preserving financial stability in the Union, and should therefore have access to transaction data for all counterparties for the purpose of their respective tasks in that regard.

(5)

Supervisors and overseers of central counterparties (CCPs) need access to enable the effective exercise of their duties over of such entities, and should therefore have access to all the information necessary for such mandate.

(6)

Access by the relevant ESCB members serves to fulfil their basic tasks, most notably the functions of a central bank of issue, their financial stability mandate, and in some cases prudential supervision over some counterparties. Since certain ESCB members have different mandates under national legislation, they should be granted access to data in accordance to the different mandates listed in Article 81(3) of Regulation (EU) No 648/2012.

(7)

The relevant Union securities and market authorities have as a main duty investor protection in their respective jurisdictions and should be granted access to transaction data on markets, participants, products and underlyings covered under by their surveillance and enforcement mandates.

(8)

The authorities appointed under Article 4 of Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids (4) should be granted access to the transactions in equity derivatives where the underlying is either admitted to trading on a regulated market in their jurisdiction, has their legal address within their jurisdiction or is an offeror for a company for such an undertaking and the consideration it offers includes securities.

(9)

The Agency for the Cooperation of Energy Regulators (ACER) should be granted access for the purpose of monitoring wholesale energy markets in order to detect and deter market abuse in cooperation with national regulatory authorities, and the monitoring of wholesale energy markets to detect and deter market abuse under Regulation (EU) No 1227/2011 the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (REMIT) (5). ACER should therefore have access to all data held by a trade repository as regards energy derivatives.

(10)

Regulation (EU) No 648/2012 only covers trade data and not pre-trade data such as orders to trade as required under Regulation (EU) No 1227/2011. Therefore, trade repositories should not be regarded as the appropriate source of information to ACER in that regard.

(11)

Under a functional approach for accessing data held by trade repositories, prudential supervision is an essential component. Similarly, different authorities might have a prudential supervisory mandate. Therefore, access to the transaction data on the relevant entities should be ensured to all authorities listed under Article 81(3) of Regulation (EU) No 648/2012.

(12)

Entities accessing trade repository data under Article 81(3) of Regulation (EU) No 648/2012 should ensure that they keep and enforce policies in order to ensure that only the relevant persons access the information for a well-defined and legally founded purpose, also being clear on the possible other persons authorised to access such data.

(13)

The access to data should be considered within three aggregation levels. Transaction data should include individual trade details; position data should regard aggregate position data by underlying/product for individual counterparties; and aggregate notional data should correspond to overall positions by underlying/product with no counterparty details. Access to transaction data would also grant access to position level and aggregate data. Access to position data would also grant access to aggregate data, but not transaction level data. Conversely, access to aggregate notional data should be the less granular category and should not enable access to position or transaction level data.

(14)

This Regulation is based on the draft regulatory technical standards submitted by the European Securities and Markets Authority to the Commission.

(15)

In accordance with Article 10 of Regulation (EU) No 1095/2010, ESMA has consulted the relevant authorities and the members of the European System of Central Banks (ESCB) before submitting the draft regulatory technical standards on which this Regulation is based. ESMA has also conducted open public consultations on these draft regulatory technical standards, analysed the potential related costs and benefits and requested the opinion of the ESMA Securities and Markets Stakeholder Group established in accordance with Article 37 of that Regulation,

(a)

a breakdown of the aggregate open positions per derivative class as follows:

(b)

a breakdown of aggregate transaction volumes per derivative class as follows:

(c)

a breakdown of aggregate values per derivative class, as follows:

(a)

it is admitted to trading on a regulated market within their jurisdiction;

(b)

it has its registered office or, where it has no registered office, its head office, in their jurisdiction;

(c)

it is an offeror for the entities provided for in points (a) or (b) and the consideration it offers includes securities.

(a)

the underlying securities;

(b)

the derivative class;

(c)

the sign of the position;

(d)

the number of reference securities;

(e)

the counterparties to the derivative.

(a)

for all counterparties within their respective jurisdictions;

(b)

for derivatives contracts where the reference entity of the derivative contract is located within their respective jurisdiction or where the reference obligation is sovereign debt of the respective jurisdiction.

(a)

the scope of data accessed;

(b)

a reference to the legal provisions granting access to such data under Regulation (EU) No 648/2012 and this Regulation.

23.2.2013   

EN

Official Journal of the European Union

L 52/37

(1)

Regulation (EU) No 648/2012 establishes, among other matters, prudential requirements for central counterparties (CCPs) to ensure that they are safe and sound and comply at all times with the capital requirements. Given that to a great extent risks stemming from clearing activities are covered by specific financial resources, such capital requirements should ensure that a CCP is at all times adequately capitalised against credit risks, counterparty risks, market risks, operational risks, legal and business risks which are not already covered by those specific financial resources and that it is able to conduct an orderly winding down or restructuring of its operations if necessary.

(2)

The capital treatment of credit institutions and investment firms should be specifically taken into account in respect of technical standards because CCPs are exposed, while performing non-covered activities, to risks that are similar to the risks incurred by credit institutions and investment firms. Relevant parts of the Principles for Financial Market Infrastructure issued by the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions (‘CPSS-IOSCO Principles’) should also be taken into account. In order to ensure that they are able to organise an orderly winding down or restructuring of their activities, CCPs should hold sufficient financial resources to withstand operational expenses over an appropriate period of time. A CCP should be able during such a period of time to set up any kind of arrangement in order to reorganise its critical operations, including recapitalising, replacing management, revising its business strategies, cost or fee structures, restructuring the services it provides, liquidating its clearing portfolio or merging with — or transferring its clearing activities to — another CCP. During the winding down or restructuring a CCP still needs to continue its operations. While in this case some costs, such as marketing ones, may decrease, other costs, such as legal expenses, may increase. Therefore, using the gross annual operating expenses is deemed to be an appropriate approximation of the actual expenses during the winding down or restructuring of a CCP’s operations. In order to take into account the diversity of accounting practices among CCPs, the operational expenses should be considered in accordance with International Financial Reporting Standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (3) or in accordance with a number of limited other rules applicable in the field, as indicated by Union law.

(3)

As the capital shall be at all times sufficient to ensure an orderly winding down and an adequate protection against the relevant risks as required by Article 16(2) of Regulation (EU) No 648/2012, it is necessary to establish an early warning tool to enable the competent authorities to gain knowledge sufficiently in advance of the situation in which the capital of the CCP is close to the capital requirement, by introducing a notification threshold set at 110 % of the capital requirement.

(4)

Notwithstanding the difficulties in quantifying the exposure to operational risk, Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (4) is the relevant benchmark for the purpose of establishing the capital requirement for CCPs. Consistently with Directive 2006/48/EC, the definition of operational risk should include legal risk in respect of technical standards on capital requirements for central counterparties.

(5)

Directive 2006/48/EC and Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (5) are an appropriate benchmark for the purpose of establishing capital requirements to cover credit, counterparty and market risks non covered by specific financial resources, since they are similar to those carried out by credit institutions or investment firms.

(6)

A CCP does not have to hold capital for trade exposures and default fund contributions which arise under an interoperability arrangement where the requirements of Articles 52 and 53 of Regulation (EU) No 648/2012 are fulfilled. However, where these requirements are not fulfilled, links between CCPs might expose them to additional risk if the collateral posted by them is not fully protected and bankruptcy remote or if the default fund contributions are at risk in case a clearing member of the receiving CCP defaults. Therefore, in such cases capital charges should apply to default fund contributions and to trade exposures with other CCPs. In order to avoid contagion effects, the treatment regarding default fund contributions to other CCPs should in general be more conservative than the treatment of credit institution exposures to CCPs. The own resources of a CCP used to contribute to the default fund of another CCP should not be taken into account for the purposes of Article 16(2) of Regulation (EU) No 648/2012 as they are not invested in accordance with its investment policy. They should also not be double-counted for the purpose of calculating risk weighted exposures stemming from these contributions.

(7)

The time necessary for an orderly winding down is strictly dependent on the clearing services provided by the single CCP and on the market environment in which it operates, especially in the case where another CCP can take on its services. Therefore, the number of months required for winding down should be based on the CCP’s own estimate, subject to the approval of the competent authority. A minimum number of six months needs to be introduced in order to ensure a prudent level of the capital requirements.

(8)

Business risk refers to the risk a CCP assumes due to its efficiency and potential changes in general business conditions which are likely to impair its financial position as a consequence of decline in its revenues or an increase in its expenses resulting in a loss that must be charged against its capital. Since the level of business risk is highly dependent on the individual situation of each CCP and can be caused by various factors such as inefficient procedures, adverse market environment, ineffective response to technological progress, or poor execution of business strategies, the capital requirement should be based on a CCP’s own estimate subject to the approval of the competent authority. A floor needs to be introduced in order to ensure a prudent level of the capital requirements.

(9)

The European Banking Authority (EBA) has worked in close cooperation with the European System of Central Banks (ESCB) and has consulted the European Securities and Markets Authority (ESMA) before submitting the draft technical standards on which this Regulation is based. It has also conducted open public consultations on the draft regulatory technical standards, analysed the potential related costs and benefits and requested the opinion of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council (6).

(10)

This Regulation is based on the draft regulatory technical standards submitted by the European Supervisory Authority (European Banking Authority) to the European Commission,

(a)

the CCP’s capital requirements for winding down or restructuring its activities calculated in accordance with Article 2;

(b)

the CCP’s capital requirements for operational and legal risks calculated in accordance with Article 3;

(c)

the CCP’s capital requirements for credit, counterparty and market risks calculated in accordance with Article 4;

(d)

the CCP’s capital requirements for business risk calculated in accordance with Article 5.

(a)

the reasons for the CCP’s capital being below the notification threshold and a description of the short-term perspective of the CCP’s financial situation;

(b)

a comprehensive description of the measures the CCP intends to adopt to ensure the on-going compliance with the capital requirements.

23.2.2013   

EN

Official Journal of the European Union

L 52/41

(1)

The provisions in this Regulation are closely linked, since they deal with organisational requirements, including record keeping and business continuity, and prudential requirements, including in relation to margins, the default fund, liquidity risk controls, the default waterfall, collateral, investment policy, review of models, stress testing and back testing. To ensure coherence between those provisions, which should enter into force at the same time, and to facilitate a comprehensive view and compact access to them by persons subject to those obligations it is desirable to include all the regulatory technical standards required under Title III and Title IV of Regulation (EU) No 648/2012 in a single Regulation.

(2)

In view of the global nature of financial markets, this Regulation should take into account the Principles for Financial Market Infrastructures issued by the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions (CPSS-IOSCO Principles) which serve as a global benchmark for regulatory requirements for central counterparties (CCPs).

(3)

To ensure that they are safe and sound in all market conditions, it is important that CCPs adopt prudent risk management procedures which duly cover all the risks they are or may be exposed to. In this respect, the risk management standards actually implemented by CCPs should be more stringent than those set forth in this Regulation if for risk management purposes it is deemed appropriate.

(4)

In order to clearly identify a limited number of concepts stemming from Regulation (EU) No 648/2012, as well as to specify the technical terms necessary for developing this technical standard, a number of terms should be defined.

(5)

It is important to ensure that recognised third country CCPs do not disrupt the orderly functioning of Union markets. For this reason, it is essential to ensure that recognised CCPs are not in a position to lower their risk management requirements below Union standards, which could lead to regulatory arbitrage. The information to be provided to ESMA concerning the recognition of a third country CCP should enable ESMA to assess whether that CCP is in full compliance with the prudential requirements applicable in that third country. In addition, the equivalence determination by the Commission should ensure that the laws and regulations of the third country are equivalent to every provision under Title IV of Regulation (EU) No 648/2012 and of this Regulation.

(6)

To ensure an adequate level of investor protection, in the recognition of third country CCPs the European Securities and Markets Authority (ESMA) may require additional information to the one strictly necessary to assess that conditions established in Regulation (EU) No 648/2012 are fulfilled.

(7)

The ongoing assessment of the full compliance of a third country CCP with the prudential requirements of such third country is the duty of the third country competent authority. The information to be provided to ESMA by the applicant third country CCP should not have the objective of replicating the assessment of the third country competent authority, but ensuring that the CCP is subject to effective supervision and enforcement in that third country, thus guaranteeing a high degree of investor protection.

(8)

To allow ESMA to perform a complete assessment, the information provided by the applicant third country CCP should be complemented by that information necessary to assess the effectiveness of the ongoing supervision, enforcement powers and actions taken by the third country competent authority. Such information should be provided under the cooperation arrangement established in accordance with Regulation (EU) No 648/2012. Such a cooperation arrangement should ensure that ESMA is informed in a timely manner of any supervisory or enforcement action against the CCP applying for recognition and any change of the conditions under which authorisation was granted to the relevant CCP and on any relevant update of the information originally provided by the CCP under the recognition process.

(9)

The requirements of Regulation (EU) No 648/2012 relating to internal risk reporting lines need further specification to implement a risk-management framework, which includes the structure, rights and responsibilities of the internal risk management process. Governance arrangements should take into account different regimes on corporate law in the Union, in order to ensure that CCPs operate within a sound legal framework.

(10)

To ensure that a CCP implements the appropriate procedures to comply with this Regulation, Regulation (EU) No 648/2012 and Commission Implementing Regulation (EU) No 1249/2012 (3), the role and responsibilities of a compliance function of a CCP should be specified.

(11)

It is necessary to clearly define the responsibilities of the board and the senior management as well as to specify minimum requirements for the functioning of the board in order to ensure that the organisational structure of a CCP enables it to perform its services and activities in a continuous and orderly manner. It is also necessary to set up clear and direct reporting lines to ensure accountability.

(12)

In order to ensure the sound and prudent management of a CCP, it is important that its remuneration policy discourages excessive risk taking. For the remuneration policy to produce the intended effects, it should be adequately monitored and reviewed by the board that should set-up a specific committee to appropriately oversee the fulfilment of remuneration policy.

(13)

To ensure that CCPs operate with the necessary level of human resources to meet all of their obligations, they are accountable for the performance of their activities and competent authorities have the relevant contact points within the CCPs they supervise, CCPs should have at least a chief risk officer, a chief compliance officer and chief technology officer.

(14)

CCPs should adequately assess and monitor the extent to which board members that sit on the boards of different entities have conflicts of interest, whether within or outside the group of the CCP. Board members should not be prevented from sitting on different boards unless this gives rise to conflicts of interest.

(15)

In order to have an effective audit function, a CCP should define the responsibilities and reporting lines of its internal auditors, to ensure that relevant matters are brought before the board of the CCP and the competent authorities in a timely manner. When establishing and maintaining an internal audit function, its mission, independence and objectivity, scope and responsibility, authority, accountability and standards of operation should be clearly defined.

(16)

To carry out its duties effectively, the relevant competent authority should be provided with access to all necessary information to determine whether the CCP is in compliance with its conditions of authorisation. Such information should be made available by the CCP without undue delay.

(17)

Records kept by CCPs should facilitate a thorough knowledge of CCPs’ credit exposure towards clearing members and allow monitoring of the implied systemic risk. They should also enable competent authorities, ESMA and the relevant members of the European System of Central Banks (ESCB) to adequately re-construct the clearing process, in order to assess compliance with regulatory requirements including reporting requirements. Once recorded, that data is also useful for CCPs in meeting regulatory requirements and obligations towards clearing members and in disputes.

(18)

Data reported by CCPs to trade repositories should be recorded so as to empower competent authorities to verify the compliance of CCPs with the reporting obligation set out in Regulation (EU) No 648/2012 and to easily access information in cases where this cannot be found in trade repositories.

(19)

The record-keeping requirements in relation to trades should make use of the same concepts used in the reporting obligation set out in Article 9 of Regulation (EU) No 648/2012, in order to ensure appropriate reporting by CCPs.

(20)

To ensure business continuity in times of disruption, the secondary processing site of the CCP should be located sufficiently distant and in a sufficiently geographically distinct location from the primary site so that it would not be subject to the same disaster which may cause the unavailability of the primary site. Scenarios should be created to analyse the impact of crisis events on critical services, including scenarios which envisage the unavailability of systems caused by a natural disaster. Those analyses should be reviewed periodically.

(21)

CCPs are systemically relevant financial market infrastructures and they should recover critical functions within two hours, with backup systems ideally starting processing immediately after an incident. CCPs should also ensure with very high probability that no data will be lost.

(22)

It is important that the default of a clearing member does not cause significant losses to other market participants. Therefore, CCPs are required to cover through margins posted by the defaulter, at least, a relevant proportion of the possible loss that during the close out process the CCP might have. Rules should determine the minimum percentage the margins should cover for different classes of financial instruments. Furthermore, CCPs should follow principles to adequately tailor their margin levels to the characteristics of each financial instrument or portfolio they clear.

(23)

CCPs should not reduce their margins to a level that compromises their safety as a result of the existence of a highly competitive environment. For this reason, margin calculations should follow specific requirements in their basic components. In this sense, margins should take into account a full range of market conditions including periods of stress.

(24)

Rules should be established to specify the appropriate percentage and time horizons for the liquidation period and the calculation of historical volatility. However, in order to ensure that CCPs duly manage the risk they face, it is desirable not to specify the approach which the CCP should take to calculating margin requirements from these parameters. For the same reasons, CCPs should not be prevented to rely on various reliable methodological approaches for the development of portfolio margining, they should be allowed to rely on methods based on correlations between price risk of the financial instrument or set of financial instruments they clear, as well as any appropriate methods based on equivalent statistical parameters of dependence.

(25)

To determine the period of time during which a CCP is exposed to market risk related to the management of a defaulter’s position, the CCP should consider the relevant characteristics of the financial instruments or portfolio cleared, such as their level of liquidity and the size of the position or its concentration. CCPs should prudently evaluate the time required for the complete closure of a defaulter’s position since the latest collection of margins, the size of the position and its concentration.

(26)

In order to avoid causing or exacerbating financial instability, CCPs should, to the maximum extent practical, adopt forward-looking margin methodologies that limit the likelihood of procyclical changes in margin requirements, without undermining the resilience of the CCP.

(27)

A higher confidence interval for OTC derivatives is typically justified because those products can suffer from less reliable pricing and shorter runs of historical data on which to base exposure estimations. CCPs might clear OTC derivatives that do not suffer from such phenomena and have the same risk characteristics as listed derivatives and they should be able to clear those products consistently irrespective of the execution method.

(28)

A suitable definition of extreme but plausible market conditions is a core component of CCP risk management. For the purposes of keeping the CCP risk management framework up to date, extreme but plausible market conditions should not be considered as a static concept, but rather as conditions that evolve over time and vary across markets. One market scenario can be extreme but plausible for one CCP while not having great importance for another. A CCP should establish a robust internal policy framework for identifying the markets to which it is exposed and employ a common minimum set of standards for defining extreme but plausible conditions in each identified market. It should also consider objectively the potential for simultaneous pressures in multiple markets.

(29)

To ensure appropriate and robust governance arrangements are in place, the framework used by a CCP to identify extreme but plausible market conditions should be discussed by the risk committee and approved by the board. It should be reviewed at least annually, with results discussed by the risk committee and then shared with the board. The review should ensure that changes to the scale and concentration of the CCP’s exposures as well as developments in the markets in which it operates are reflected in the definition of extreme but plausible market conditions. That review should not, however, be a substitute for continuous judgment by the CCP on the adequacy of its default fund in light of evolving market conditions.

(30)

To ensure efficient management of their liquidity risk, CCPs should be required to establish a liquidity risk management framework. That framework should depend on the nature of its obligations and address the tools a CCP has available for assessing the liquidity risk it is facing, determining the liquidity pressures likely to occur and ensuring the adequacy of its liquid resources.

(31)

In assessing the adequacy of its liquid resources, a CCP should be required to consider the size and liquidity of the resources it holds, as well as the possible concentration risk of those assets. It is important that CCPs are able to identify all major kinds of liquidity risk concentrations within their resources so that the CCP’s liquidity resources are immediately available when necessary. CCPs should also consider additional risks stemming from multiple relationships, interdependencies and concentrations.

(32)

As liquidity has to be readily available for same day transactions or even intraday transactions, a CCP might employ cash at the central bank, of issue, cash at creditworthy commercial banks, committed lines of credit, committed repos, highly marketable collateral held in custody and investments that are readily available and convertible into cash with prearranged and highly reliable funding arrangements, even in stressed market conditions. Such cash and collateral should only be counted as part of prearranged liquid financial resources under certain conditions.

(33)

In order to provide the necessary incentive to the CCP to set prudent requirements and to keep that amount to an adequate level while avoiding regulatory arbitrage, it is important to establish a common methodology for the calculation and the maintenance of a specific amount of the dedicated own resources that a CCP should maintain to be used in the default waterfall. It is essential to keep those resources covering default losses separate and with a distinct function from the CCP’s minimum capital requirements which cover different risks to which a CCP might be exposed.

(34)

It is important that CCPs apply a consistent methodology for the calculation of the own resources to be used in the default waterfall, in order to ensure equivalent conditions field between CCPs. Allowing CCPs discretion to implement a methodology that is insufficiently clear would lead to very different results among CCPs, thus providing incentives for regulatory arbitrage. It is therefore essential that the methodology does not allow for discretion to CCPs. For this purpose, it would be appropriate to have a simple percentage based on a clearly identifiable measure and a clear methodology for ensuring a consistent calculation of CCPs’ own resources to be used in a default waterfall.

(35)

A minimum set of criteria should be laid down to ensure that acceptable collateral is highly liquid and can be converted into cash rapidly and with minimal price impact. Those criteria should refer to the issuer of the collateral, the extent to which it can be liquidated in the market and whether its value is correlated with the credit standing of the member posting the collateral to cater for possible wrong-way risk. A CCP should have the option to apply additional criteria where necessary to achieve the desired level of robustness.

(36)

CCPs should only accept highly liquid collateral with minimal credit and market risk. In order to ensure that the collateral held by CCPs remains highly liquid at all times, it is necessary that CCPs establish transparent and predictable policies and procedures to assess and continuously monitor the liquidity of assets accepted as collateral, implement adequate valuation methodologies. To that purpose, CCPs should also implement concentration limits aimed at maintaining a sufficient diversification of the collateral to ensure that it can be liquidated promptly without significant market risk affecting its value. In determining their policies on eligible collateral and concentration limits they should take in account the global availability of such collateral in view of the potential macroeconomic effects of their policies.

(37)

To avoid wrong-way risk, clearing members should not, in general, be permitted to use as collateral their own securities or securities issued by an entity from their same group. However, a CCP should be able to allow clearing members to post covered bonds that are insulated from the insolvency of the issuer. The underlying collateral should nevertheless be appropriately segregated from the issuer and satisfy the minimum criteria for acceptability of collateral. A clearing member should not issue financial instruments for the primary purpose of using them as collateral by another clearing member.

(38)

To ensure the safety of CCPs, a CCP should accept as collateral a commercial bank guarantee only after a thorough assessment of the issuer and of the legal, contractual and operational framework of the guarantee. Unsecured exposures of CCPs to commercial banks should be avoided. Therefore, commercial bank guarantees may be accepted only under strict conditions. Those conditions are generally met in markets characterised by a high concentration of commercial banks willing to provide credit to non-financial clearing members. For this reason a higher concentration limit should be permitted in these cases.

(39)

To limit its market risk, a CCP should be required to value its collateral at least daily. It should apply prudent haircuts that reflect the potential decrease of value of the collateral over the interval between its last revaluation and the time by which the collateral can reasonably be assumed to be liquidated under stressed market conditions. The level of collateral should also take account of potential wrong-way risk exposures.

(40)

The implementation of haircuts should enable the CCP to avoid large and unexpected adjustments to the amount of collateral required, thus avoiding procyclical effects to the extent possible.

(41)

A CCP should not concentrate collateral on a limited number of issuers or in a limited number of assets, so as to avoid potential significant adverse price effects in case of liquidation of the collateral in a short period of time. Concentrated collateral positions should not be considered highly liquid for this reason.

(42)

Liquidity, credit and market risk should be considered at portfolio level as well as at the level of an individual financial instrument. A concentrated portfolio can have a significant negative effect on the liquidity of the collateral or of the financial instruments in which the CCP can invest its financial resources, since selling large positions in stressed market conditions is unlikely to be feasible without depressing the market price. For the same reason, collateral maintained by the CCP should be monitored and valued on a continuous basis to ensure that it remains liquid.

(43)

Energy derivative markets show a particularly strong interlink with spot commodity markets and in these derivative markets the proportion of non-financial clearing members is high. On those markets, a significant number of market participants are also producers of the underlying commodity. Access to sufficient collateral to back commercial bank guarantees in full could require substantial divesting by those non-financial clearing members of their current positions or could impede them from continuing to clear their positions as a direct clearing member of a CCP. That process could cause market disruptions in energy markets, in terms of liquidity and diversity of market participants. Therefore, its application should be postponed according to a well established time-frame.

(44)

In order to ensure a consistent application of the framework established in Regulation (EU) No 648/2012, all sectors should face similar requirements in the final form of the rules applicable to them. Energy firms currently operate under a well-established framework that will require time to adapt to the new requirements established to avoid detrimental effects to the real economy. Therefore, it is considered desirable to establish an application date for such types of markets that allows an appropriate transition from the current market practice without affecting unduly market structure and liquidity.

(45)

The investment policy of a CCP should assign the highest priority to the principles of capital preservation and liquidity maximisation. The investment policy should also ensure that no conflicts of interest arise with the commercial interests of the CCP.

(46)

The criteria that financial instruments should meet to be considered eligible investments for the CCP, should take into account Principle 16 of the CPSS-IOSCO Principles — in order to ensure international consistency. In particular, a CCP should be required to apply restrictive standards concerning the issuer of the financial instrument, the transferability of the financial instrument and the credit, market, volatility and foreign exchange risk of the financial instrument. A CCP should ensure that it does not undermine measures taken to limit the risk exposure of its investments by having excessive exposures to any individual financial instrument, type of financial instrument, individual issuer, type of issuer or individual custodian.

(47)

The use of derivatives by a CCP exposes it to additional credit and market risks and it is therefore necessary to define a restrictive set of circumstances in which a CCP can invest its financial resources in derivatives. Given that a CCP’s aim should be to have a flat position with regards to market risk, the only risks that a CCP should need to hedge are those concerning the collateral that it accepts or the risks arising from the default of a clearing member. Risks concerning the collateral that a CCP accepts can be sufficiently managed through haircuts and it is not considered necessary for a CCP to use derivatives in this regard. Derivatives should only be used by a CCP for managing liquidity risk arising for exposures to different currencies and for the purposes of hedging the portfolio of a defaulted clearing member and only where the CCP’s default management procedures envisage such use.

(48)

To ensure the safety of CCPs, they should only be allowed to maintain cash in unsecured deposits in minimal proportions. In securing its cash, CCPs should always ensure that they are always adequately protected against liquidity risk.

(49)

It is necessary to set out rigorous stress and back testing requirements to ensure that a CCP’s models, their methodologies and the liquidity risk management framework work properly, taking into account all risks the CCP is exposed to, so that the CCP has at all times adequate resources to cover those risks.

(50)

To ensure consistent application of requirements for CCPs, it is necessary to set out detailed provisions with respect to the types of tests to be undertaken, including both stress and back testing. In order to cater for the wide range of security and derivative contracts which may be cleared in the future, reflect differences in CCP’s business and risk management approaches, allow for future developments and new risks to be dealt with and allow for sufficient flexibility, a criteria based approach is necessary.

(51)

In validating a CCP’s models, their methodologies and the liquidity risk management framework it is important to use an appropriate independent party so that any necessary corrective measures can be found and implemented before implementation and to avoid any material conflicts of interest. The independent party should be sufficiently separate from the part of the CCP’s business that develops, implements and will operate the model or policies being reviewed and should not hold a material conflict of interest. Those conditions could be met either by an internal party that has separate reporting lines or an external party.

(52)

Various aspects of a CCP’s financial resources, notably margin coverage, default funds and other financial resources, are designed to cover different scenarios and objectives. It is therefore necessary to provide specific requirements to reflect these objectives and to ensure consistent application across CCPs. In assessing the necessary coverage the CCP should not net off any exposures between defaulting clearing members, in order to avoid reducing the potential impacts that these exposures might have.

(53)

The different types of financial instruments which a CCP may clear are subject to a variety of specific risks. A CCP should therefore be required to consider all the risks relevant to the markets it provides clearing services for in its models, their methodologies and the liquidity risk management framework to ensure it adequately measures its potential future exposure. In order for such risks to be properly considered, stress testing requirements should include instrument-specific risks relevant to different types of financial instruments.

(54)

For a CCP to ensure that its model for calculating initial margins adequately reflects its potential exposures, in addition to the daily back testing of its margin coverage which looks at the adequacy of the margin being called, it should also back test key parameters and assumptions of the model. This is essential to ensure that CCPs’ models calculate initial margin accurately.

(55)

Rigorous sensitivity analysis of margin requirements may take on increased importance when markets are illiquid or volatile and should be used to determine the impact of varying important model parameters. Sensitivity analysis is an effective tool to explore hidden shortcomings that cannot be discovered through back testing.

(56)

Failure to conduct stress and back tests regularly could lead to a CCP’s financial and liquid resources being inadequate to cover the actual risks it is exposed to. Appropriate tests will also allow a CCP’s models, their methodologies and the liquidity risk management framework to deal with changing markets and new risks promptly. Test results should therefore be used promptly by CCPs to review their models, methodologies and liquidity risk management framework.

(57)

Modelling extreme market conditions can help a CCP determining the limits of its current models, the liquidity risk management framework and the financial and liquid resources. However, it requires the CCP to exercise judgment when modelling different markets and products. Reverse stress testing should be considered a helpful management tool, whilst not the main one, to determine the appropriate level of financial resources.

(58)

The involvement of clearing members, clients and other relevant stakeholders in the testing of a CCP’s default management procedures, through simulation exercises, is essential to ensure that they have the understanding and operational capability to successfully participate in a default management situation. Simulation exercises should replicate a default scenario to demonstrate the roles and responsibilities of clearing members, clients and other relevant stakeholders. Additionally it is important that a CCP has appropriate mechanisms that enable it to ascertain whether corrective action is required and to identify any lack of clarity in, or discretion allowed by, the rules and procedures. The testing of a CCP’s default management procedures is particularly important where it relies on non-defaulting clearing members or third parties to assist in the close-out process and where the default procedures have never been tested by an actual default.

(59)

This Regulation is based on the draft regulatory technical standards submitted by the European Securities and Markets Authority (ESMA) to the Commission.

(60)

ESMA has consulted, where relevant, the European Banking Authority (EBA), the European Systemic Risk Board and the members of the ESCB before submitting the draft technical standards on which this Regulation is based. In accordance with Article 10 of Regulation (EU) No 1095/2010 of the European Parliament and the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority) (4), ESMA has conducted open public consultations on such draft regulatory technical standards, analysed the potential related costs and benefits and requested the opinion of the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010,

(1)

‘basis risk’ means the risk arising from less than perfectly correlated movements between two or more assets or contracts cleared by the central counterparty (CCP);

(2)

‘confidence interval’ means the percentage of exposures movements for each financial instrument cleared with reference to a specific lookback period that a CCP is required to cover over a certain liquidation period;

(3)

‘convenience yield’ means the benefits from direct ownership of the physical commodity and is affected both by market conditions and by factors such as physical storage costs;

(4)

‘margins’ means margins as referred to in Article 41 of Regulation (EU) No 648/2012 which may include initial margins and variation margins;

(5)

‘initial margin’ means margins collected by the CCP to cover potential future exposure to clearing members providing the margin and, where relevant, interoperable CCPs in the interval between the last margin collection and the liquidation of positions following a default of a clearing member or of an interoperable CCP default;

(6)

‘variation margin’ means margins collected or paid out to reflect current exposures resulting from actual changes in market price;

(7)

‘jump to default risk’ means the risk that a counterparty or issuer defaults suddenly before the market has had time to factor in its increased default risk;

(8)

‘liquidation period’ means the time period used for the calculation of the margins that the CCP estimates necessary to manage its exposure to a defaulting member and during which the CCP is exposed to market risk related to the management of the defaulter’s positions;

(9)

‘lookback period’ means the time horizon for the calculation of historical volatility;

(10)

‘testing exception’ means the result of a test which shows that a CCP’s model or liquidity risk management framework did not result in the intended level of coverage;

(11)

‘wrong-way risk’ means the risk arising from exposure to a counterparty or issuer when the collateral provided by that counterparty or issued by that issuer is highly correlated with its credit risk.

(a)

full name of the legal entity;

(b)

identities of the shareholders or members with qualifying holdings;

(c)

a list of the Member States in which it intends to provide services;

(d)

classes of financial instruments cleared;

(e)

details to be included in the ESMA website in accordance with Article 88(1)(e) of Regulation (EU) No 648/2012;

(f)

details of its financial resources, the form and methods in which they are maintained and the arrangements to secure them including default management procedures;

(g)

details on the margin methodology and for the calculation of the default fund;

(h)

a list of the eligible collateral;

(i)

a breakdown of values, in prospective form if needed, cleared by the applying CCP by each Union currency cleared;

(j)

results of the stress tests and back tests performed during the year preceding the date of application;

(k)

its rules and internal procedures with evidences of full compliance with the requirements applicable in that third country;

(l)

details of any outsourcing arrangements;

(m)

details on segregation arrangements and respective legal soundness and enforceability;

(n)

details on the CCP’s access requirements and terms for suspension and termination of membership;

(o)

details of any interoperability arrangement, including the information provided to the third country competent authority for the purpose of assessing the arrangement.

(a)

the composition, role and responsibilities of the board and any board committees;

(b)

the roles and responsibilities of the management;

(c)

the senior management structure;

(d)

the reporting lines between the senior management and the board;

(e)

the procedures for the appointment of board members and senior management;

(f)

the design of the risk management, compliance and internal control functions;

(g)

the processes for ensuring accountability to stakeholders.

(a)

monitor and, on a regular basis, assess the adequacy and effectiveness of the measures put in place in accordance with Article 5(4) and the actions taken to address any deficiencies in the CCP’s compliance with its obligations;

(b)

administer the compliance policies and procedures established by senior management and the board;

(c)

advise and assist the persons responsible for carrying out the CCP services and activities to comply with the CCP’s obligations under this Regulation, Regulation (EC) No 648/2012 and Implementing Regulation (EU) No 1249/2012 and other regulatory requirements, where applicable;

(d)

report regularly to the board on compliance by the CCP and its employees with this Regulation, Regulation (EU) No 648/2012 and Implementing Regulation (EU) No 1249/2012;

(e)

establish procedures for the effective remediation of instances of non-compliance;

(f)

ensure that the relevant persons involved in the compliance function are not involved in the performance of the services or activities they monitor and that any conflicts of interest of such persons are properly identified and eliminated.

(a)

the establishment of clear objectives and strategies for the CCP;

(b)

the effective monitoring of senior management;

(c)

the establishment of appropriate remuneration policies,

(d)

the establishment and oversight of the risk management function;

(e)

the oversight of the compliance function and internal control function;

(f)

the oversight of outsourcing arrangements;

(g)

the oversight of compliance with all provisions of this Regulation, Regulation (EU) No 648/2012, Implementing Regulation (EU) No 1249/2012 and all other regulatory and supervisory requirements;

(h)

the provision of accountability to the shareholders or owners and employees, clearing members and their customers and other relevant stakeholders.

(a)

ensuring consistency of the CCP’s activities with the objectives and strategy of the CCP as determined by the board;

(b)

designing and establishing compliance and internal control procedures that promote the CCP’s objectives;

(c)

subjecting the internal control procedures to regular review and testing;

(d)

ensuring that sufficient resources are devoted to risk management and compliance;

(e)

be actively involved in the risk control process;

(f)

ensuring that risks posed to the CCP by its clearing and activities linked to clearing are duly addressed.

(a)

access controls to the system;

(b)

adequate safeguards against intrusions and data misuse;

(c)

specific devices to preserve data authenticity and integrity, including cryptographic techniques;

(d)

reliable networks and procedures for accurate and prompt data transmission without major disruptions;

(e)

audit trails.

(a)

information regarding its governance arrangements, including the following:

(b)

information regarding its rules, including the following:

(c)

information regarding eligible collateral and applicable haircuts;

(d)

a list of all current clearing members, including admission, suspension and exit criteria for clearing membership.

(a)

to establish, implement and maintain an audit plan to examine and evaluate the adequacy and effectiveness of the CCP’s systems, internal control mechanisms and governance arrangements;

(b)

to issue recommendations based on the result of work carried out in accordance with point (a);

(c)

to verify compliance with those recommendations;

(d)

to report internal audit matters to the board.

(a)

each key stage of the processing by the CCP may be reconstituted;

(b)

the original content of a record before any corrections or other amendments may be recorded, traced and retrieved;

(c)

measures to prevent unauthorised alteration of records are in place;

(d)

security and confidentiality of the data recorded are ensured through appropriate measures;

(e)

a mechanism for identifying and correcting errors is incorporated in the record keeping system;

(f)

the timely recovery of the records in the case of a system failure is ensured within the record keeping system.

(a)

the price, rate or spread and quantity;

(b)

the clearing capacity, which identifies whether the transaction was a buy or sale from the perspective of the CCP recording;

(c)

the instrument identification;

(d)

the identification of the clearing member;

(e)

the identification of the venue where the contract was concluded;

(f)

the date and time of interposition of the CCP;

(g)

the date and time of termination of the contract;

(h)

the terms and modality of settlement;

(i)

the date and time of settlement or of buy-in of the transaction and to the extent they are applicable of the following details:

(a)

the identification of the clearing member, of the client, if known to the CCP, and of any interoperable CCP maintaining such position, where applicable;

(b)

the sign of the position;

(c)

the daily calculation of the value of the position with records of the prices at which the contracts are valued, and of any other relevant information.

(a)

the organisational charts for the board and relevant committees, clearing unit, risk management unit, and all other relevant units or divisions;

(b)

the identities of the shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings and the amounts of those holdings;

(c)

the documents attesting the policies, procedures and processes required under Chapter III and Article 29;

(d)

the minutes of board meetings and, if applicable, of meetings of sub-committees of the board and of senior management committees;

(e)

the minutes of meetings of the risk committee;

(f)

the minutes of consultation groups with clearing members and clients, if any;

(g)

internal and external audit reports, risk management reports, compliance reports, and reports by consultant companies, including management responses;

(h)

the business continuity policy and disaster recovery plan, required under Article 17;

(i)

the liquidity plan and the daily liquidity reports, required under Article 32;

(j)

records reflecting all assets and liabilities and capital accounts as required under Article 16 of Regulation (EU) No 648/2012;

(k)

complaints received, with information on the complainant’s name, address, and account number; the date the complaint was received; the name of all persons identified in the complaint; a description of the nature of the complaint; the disposition of the complaint, and the date the complaint was resolved;

(l)

records of any interruption of services or dysfunction, including a detailed report on the timing, effects and remedial actions;

(m)

records of the results of the back and stress tests performed;

(n)

written communications with competent authorities, ESMA and the relevant members of the ESCB;

(o)

legal opinions received in accordance with Chapter III;

(p)

where applicable, documentation regarding interoperability arrangements with other CCPs;

(q)

the information under Article 10(1)(b)(vii) and (1)(d);

(r)

the relevant documents describing the development of new business initiatives.

(a)

involve scenarios of large scale disasters and switchovers between primary and secondary sites;

(b)

include involvement of clearing members, external providers and relevant institutions in the financial infrastructure with which interdependencies have been identified in the business continuity policy.

(a)

for OTC derivatives, 99,5 %;

(b)

for financial instruments other than OTC derivatives, 99 %.

(a)

the complexities and level of pricing uncertainties of the class of financial instruments which may limit the validation of the calculation of initial and variation margin;

(b)

the risk characteristics of the class of financial instruments, which can include, but are not limited to, volatility, duration, liquidity, non-linear price characteristics, jump to default risk and wrong way risk;

(c)

the degree to which other risk controls do not adequately limit credit exposures;

(d)

the inherent leverage of the class of financial instruments, including whether the class of financial instrument is significantly volatile, is highly concentrated among a few market players or may be difficult to close out.

(a)

five business days for OTC derivatives;

(b)

two business days for financial instruments other than OTC derivatives.

(a)

the longest possible period that may elapse from the last collection of margins up to the declaration of default by the CCP or activation of the default management process by the CCP;

(b)

the estimated period needed to design and execute the strategy for the management of the default of a clearing member according to the particularities of each class of financial instrument, including its level of liquidity and the size and concentration of the positions, and the markets the CCP will use to close-out or hedge completely a clearing member position;

(c)

where relevant, the period needed to cover the counterparty risk to which the CCP is exposed.

(a)

such time horizon would be more appropriate than that specified in paragraph 1 in view of the specific features of the relevant OTC derivatives;

(b)

such time horizon is at least two business days.

(a)

applying a margin buffer at least equal to 25 % of the calculated margins which it allows to be temporarily exhausted in periods where calculated margin requirements are rising significantly;

(b)

assigning at least 25 % weight to stressed observations in the lookback period calculated in accordance with Article 26;

(c)

ensuring that its margin requirements are not lower than those that would be calculated using volatility estimated over a 10 year historical lookback period.

(a)

a range of historical scenarios, including periods of extreme market movements observed over the past 30 years, or as long as reliable data have been available, that would have exposed the CCP to greatest financial risk. If a CCP decides that recurrence of a historical instance of large price movements is not plausible, it shall justify its omission from the framework to the competent authority;

(b)

a range of potential future scenarios, founded on consistent assumptions regarding market volatility and price correlation across markets and financial instruments, drawing on both quantitative and qualitative assessments of potential market conditions.

(a)

managing and monitoring, at least on a daily basis, its liquidity needs across a range of market scenarios;

(b)

maintaining sufficient liquid financial resources to cover its liquidity needs and distinguish among the use of the different types of liquid resources;

(c)

the daily assessment and valuation of the liquid assets available to the CCP and its liquidity needs;

(d)

identifying sources of liquidity risk;

(e)

assessing timescales over which the CCP’s liquid financial resources should be available;

(f)

considering potential liquidity needs stemming from clearing members ability to swap cash for non-cash collateral;

(g)

the processes in the event of liquidity shortfalls;

(h)

the replenishment of any liquid financial resources it may employ during a stress event.

(a)

settlement banks;

(b)

payments systems;

(c)

securities settlement systems;

(d)

nostro agents;

(e)

custodian banks;

(f)

liquidity providers;

(g)

interoperable CCPs;

(h)

service providers.

(a)

cash deposited at a central bank of issue;

(b)

cash deposited at authorised credit institutions in accordance with Article 47;

(c)

committed lines of credit or equivalent arrangements with non-defaulting clearing members;

(d)

committed repurchase agreements;

(e)

highly marketable financial instruments that satisfy the requirements of Article 45 and Article 46 and that the CCP can demonstrate are readily available and convertible into cash on a same-day basis using prearranged and highly reliable funding arrangements, including in stressed market conditions.

(a)

a currency for which the CCP can demonstrate to the competent authorities that it is able to adequately manage the risk;

(b)

a currency in which the CCP clears transactions, in the limit of the collateral required to cover the CCP’s exposures in that currency.

(a)

the type of asset and level of credit risk associated with the financial instrument based upon internal assessment by the CCP. In performing such assessment the CCP shall employ a defined and objective methodology that shall not fully rely on external opinions and that takes into consideration the risk arising from the establishment of the issuer in a particular country;

(b)

the maturity of the asset;

(c)

the historical and hypothetical future price volatility of the asset in stressed market conditions;

(d)

the liquidity of the underlying market, including bid/ask spreads;

(e)

the foreign exchange risk, if any;

(f)

wrong-way risk.