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EMIR legislation passes European Parliament vote

29 Mar 2012 17:45:15 | edem esgm

European legislators voted through proposals on Thursday aimed at bringing greater security and transparency to derivatives markets. After several amendments were made to the original text, the European Markets Infrastructure Regulation (EMIR) was passed.

Over-the-counter (OTC) derivatives have been in regulators' sights since 2008, after playing a pivotal role in exacerbating the effects of the financial crisis. In order to limit the damage OTC derivatives can play in any future market collapse, EMIR requires central counterparty clearing of almost all OTC derivative trades, as well as comprehensive reporting of the deals taking place.

Having passed Thursday's plenary vote, the regulation will become effective 20 days after its publication in the EU's official journal, although market participants have consistently complained that much of the proposed text is too vague in its present form.

Legislators have yet to define the thresholds above which OTC derivative trades will require reporting and clearing to the European Securities and Markets Authority (ESMA). There are also issues surrounding exemptions from EMIR, given the competing proposals of the second Market in Financial Instruments Directive (MiFID II), which is currently being prepared for presentation to the European Parliament.

Speaking to ICIS in a recent interview, Markus Ferber, MiFID II special rapporteur, stated his intention to regulate certain derivative products if they are being used for purely speculative purposes, despite their current exemption under the EMIR framework (see ESGM/EDEM 8 March 2012).

Supporters of EMIR claim the legislation is essential to preventing systemic collapse in the event of another major financial crisis.

Sharon Bowles, the chair of the European Parliament's Economic and Monetary Affairs Committee, welcomed the results of Thursday's vote, voicing her belief that EMIR will lead to "better, more transparently regulated markets". SF

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