|Implications of the European Market Infrastructure Regulation (EMIR) for commodity firms trading on the emissions market - changes by the European Parliament on 5 July 2011 - Page 2|
|Monday, 26 September 2011 05:42|
Page 2 of 4
2. Clearing obligation
2.1. The premises for the clearing obligation as regards non-financial counterparties have been also restructured on 5 July 2011. The clearing threshold will still be established by the European Commission (on the advice of ESMA) but the additional condition has been added that the non-financial counterparty will be subject to the clearing obligation only where it takes positions in OTC derivative contracts such that the rolling average position over 50 business days exceeds the threshold. The clearing obligation shall subsist as long as the non-financial counterparty's net positions and exposures in OTC derivative contracts exceed the clearing threshold and shall end once these net positions and exposures are below the clearing threshold over a specified time period.
2.2. In calculating the positions referred to in point 2.1 above, OTC derivative contracts entered into by a non-financial counterparty that are objectively measurable as directly linked to the hedging of commercial or treasury financing activity of that counterparty shall not be taken into account. In comparison with the proposal of the European Commission of 15 September 2010 the criterion of ‘treasury financing activity’ and the explicit reference to the notion of ‘hedging’ have been added in the text of 5 July 2011. In the European Commission version exempted from the clearing obligation were only ‘OTC derivative contracts objectively measurable as directly linked to the commercial activity of the non-financial counterparty’. It is noteworthy to mention that the clearing threshold and criteria for establishing which OTC derivative contracts are objectively measurable as directly linked to the commercial or treasury financing activity will be specified in draft regulatory technical standards developed by ESMA (after consulting EBA, the ESRB and other relevant authorities and conducting public consultations). Standards on this important matter will be ultimately adopted by the European Commission.
2.3. European Parliament has introduced an important exception to the clearing obligation for controlling relationships between undertakings. There will be no clearing obligation in the case of derivative contracts between subsidiary undertakings of the same parent company or between a parent company and a subsidiary undertaking. There should be born in mind that this derogation will not affect the reporting obligation or the obligations in relation to risk mitigation techniques.
The exemptions in question only apply where the parent company concerned has first notified the competent authority of its home Member State in writing that they intend to make use thereof. The notification must be made not less than thirty calendar days before the use the exemption. The competent authority shall ensure that the exemption is only used for derivative contracts that fulfill all of the following conditions:
(a) derivative contracts between subsidiary undertakings of the same parent company or between a parent company and a subsidiary undertaking are justified for economic reasons;
(b) the use of the exemption does not increase systemic risk in the financial system;
(c) there are no legal restrictions to capital flows between the subsidiary undertakings of the same parent company or between the parent company and the subsidiary undertaking.