A closer look at the European Market Infrastructure Regulation

European Market Infrastructure Regulation

Many analysts have argued that one of the main contributing factors for the recent world financial crisis was the high counterparty and operation risk associated with the over-the-counter (OTC) derivatives market. This view was accepted by the Group of Twenty (G20), who have therefore committed to have all standardised OTC derivatives being mandatory cleared by a central counterparty.

Such a commitment by the G20 was bound to have strong repercussions on the derivatives industry, since the group is made up of twenty finance ministers and central bank governors from the world’s 20 major economies, including 19 countries and the European Union. Having as their mandate the promotion of growth and economic development across the globe, the G20 members pledged to formulate specific understandings regarding regulatory and other measures that would then be implemented in order to mitigate the systemic risk involve and thus restore the much needed integrity to the financial markets, as this was seriously tarnished since the financial crisis.

The EU’s way to implement this commitment, taken at the G20 level, came through the adoption of the European Market Infrastructure Regulation (EMIR), which is in fact a new European regulation dealing with OTC derivatives, central counterparties and trade repositories.

EMIR or Regulation 648/2012 entered into force on 16 August 2012, although not in its entirety, with certain provisions including the clearing and reporting requirements having not come into effect yet. Besides clearing and reporting to trade repositories, EMIR also includes provisions on risk mitigation as well as explicit prudential and organisational requirements.

It is clear that the implementation of the EMIR affects to a greater or lesser extent, all those involved in the trading process of derivatives, irrespective if this is done on an exchange or not. Moreover, both regulated and unregulated brokers will be impacted and the effects will not only be felt by those trading within the EU, but also all those trading outside.

The three main obligations arising from EMIR, clearing, risk mitigation and reporting, all apply to financial counterparties, however there are exceptions for non-financial counterparties as regards the clearing and risk management obligations.

On the contrary, the reporting obligation is mandatory and all-encompassing and as such affects all players in the derivatives industry. The deadline for commencing to report on every transaction is looming as it is set for 12 February 2014. Our impression here at binaryoptionswire.com is that some stakeholders, including binary options brokers to cite one example, have not yet come to terms with this new regulatory framework and its demands and remain oblivious about what they need to do.

Leading financial services consultants MAP S.Platis recently announced the development of a decidated, independent reporting service the MAP-ERS in order to enable investment firms to meet their reporting requirements as stipulated by EMIR. If you are in any way involved in the trading of derivatives and have not yet taken measures to comply with EMIR provisions, then a first port of call for accurate and timely assistance could come by downloading the MAP-ERS Information Handbook, which should help you decide what to do next in order to prepare for the February 12th deadline.