The Council of the European Union and European Parliament have reached provisional political agreement on the latest revisions to the European Market Infrastructure Regulation, publishing on February 14, 2024, the agreed text of the EMIR 3 Regulation and EMIR 3 Directive. The controversial mandate for EU counterparties to hold "active accounts" at EU CCPs for all products, and to use such accounts for some products, has been substantially watered down from the European Commission's December 2022 proposal (we discussed the Commission's proposals in our client note, "Clearing in the EU After EMIR 3").
According to the final draft text, in-scope counterparties for the new "active account" requirement will be required to open and maintain accounts with EU CCPs and clear some transactions through EU CCPs for in-scope products. However, the Commission's (and some member states') ambitious and misguided attempt to force market relocations into Europe seem to have faltered. Even the largest EU derivatives traders (with EUR 6 billion + of open positions) need only clear a minimum of five (5) trades per annum for sub-categories each of the in-scope categories of products. In-scope products are interest rate derivatives denominated in euro and Polish zloty; and Short-Term Interest Rate Derivatives (STIR) denominated in euro. It had previously been proposed for CDS denominated in euro to be included, but this product is no longer in scope. The situation for CDS will be re-evaluated in the future under a review mechanism established under the EMIR 3 Regulation.
EU counterparties subject to the active account obligation must ensure that the account is permanently functional. The counterparty must have systems and resources to keep the account operational so that new trades can be cleared through the account at all times. A counterparty subject to the active account requirement that clears at least 85% of its trades in the relevant derivatives at an EU CCP will be exempt from these obligations, as well as certain reporting obligations. Counterparties that have a notional clearing volume outstanding in the relevant derivative contracts that is over EUR 6 billion must also clear through an active account at least five trades a year per each relevant category of trade assessed. Sub-categories for purposes of this minimum volume requirement will be based upon the size and maturity of the trades.
Clearing members and clients providing clearing services at both an EU CCP and a non-EU CCP will be required to inform their clients of the possibility of clearing through an EU CCP. The disclosure must describe the costs of clearing at an EU CCP and must be made when the client clearing relationship is established and on at least a quarterly basis thereafter. As originally proposed, EU clearing members and clients that clear through a non-EU CCP will need to report to their national regulator the scope of that clearing activity annually.
The active account obligation will apply to counterparties that are subject to the clearing obligation and that exceed the clearing threshold from the date that the EMIR 3 Regulation enters into force. Counterparties that become subject to the clearing obligation and exceed the clearing threshold after that date must establish an active account within six months of becoming subject to the obligation. At this time, it is unclear when the EMIR 3 Regulation will enter into force.
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