ESMA Consults on Non-EU Counterparties OTC Derivative Transactions

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On July 17, the European Securities and Markets Authority (ESMA) launched a consultation on draft regulatory technical standards (RTS). The consultation is aimed at implementing the provisions of the European Markets Infrastructure Regulation (EMIR) related to OTC derivative transactions by non-EU counterparties and at preventing attempts by non-EU counterparties to evade EMIR’s provisions.

The consultation paper clarifies conditions where EMIR’s provisions regarding central clearing or risk mitigation techniques applies to OTC derivatives by two non-EU counterparties which have a direct, substantial and foreseeable effect in the EU. The RTS would only apply when (i) two counterparties to the same transaction are established outside the EU; (ii) their jurisdictions’ rules are not considered equivalent to EMIR; and (iii) where either a) one of the two non-EU counterparties is guaranteed by an EU financial counterparty for at least €8 billion of OTC derivatives entered into and for an amount of at least 5% of the OTC derivatives exposures of the EU financial counterparty, or b) the two non-EU counterparties execute transactions via their EU branches. Consultation.