ISDA 2013 EMIR NFC Representation Protocol: Factors to consider in deciding whether to adhere

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On 8 March 2013, The International Swaps and Derivatives Association, Inc (“ISDA”) published the ISDA 2013 EMIR NFC Representation Protocol (the “Protocol”). Adherence to the Protocol provides parties to ISDA Master Agreements with a way of confirming their status for the purpose of European Union (“E.U.”) rules on the clearing of standardised derivatives. End-users in particular may find their counterparties requesting that they sign the Protocol. In this alert we examine the factors to be taken into account in deciding whether to adhere to the Protocol. We explain the background to the clearing obligation and to the Protocol, how parties can adhere to the Protocol and the effect of adherence. We also look at particular considerations for asset managers, investment advisors and agents in adhering to the Protocol.

Background -

Regulation (EU) 648/2012 of the European Parliament and the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (otherwise known as the European Market and Infrastructure Regulation or as EMIR) categorises counterparties to OTC derivative transactions as either "financial counterparties" or as "non-financial counterparties." The distinction is relevant in relation to the obligation to clear derivatives through a recognised central counterparty (or “CCP”) established by Article 4 of EMIR (the clearing obligation) and the risk-mitigation techniques for OTC derivative contracts not cleared by a CCP established by Article 11 of EMIR. The term "financial counterparty" comprises investment firms authorised under MiFID; authorised credit institutions; authorised insurance, assurance and reinsurance undertakings; UCITs funds and their related management companies; institutions for occupation retirement provision and alternative investment funds managed by investment managers authorised or registered under AIFMD (all as defined in the relevant E.U. legislation).

The term "non-financial counterparty" comprises any undertaking established in the European Union which is not a financial counterparty or a CCP.

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