Article Index


Contracts not eligible for clearing


If some of contracts at issue happen to be not eligible for CCP (central counterparty)  clearing, then the non-financial counterparty will be subject to the capital or collateral requirements specified in the Regulation. Where a non-financial counterparty takes positions in OTC derivative contracts exceeding the clearing threshold and the said contracts are not cleared by a CCP, a non-financial counterparty is obliged to introduce appropriate procedures and arrangements to monitor and mitigate operational and credit risk, including at least:

1) where possible, electronic means ensuring the timely confirmation of the terms of the OTC derivative contract;

2) robust, resilient and auditable processes in order to reconcile portfolios, to manage the associated risk and to identify disputes between parties early and resolve them, and to monitor the value of outstanding contracts.


The value of outstanding contracts must be marked-to-market on a daily basis and risk management procedures must require the timely, accurate and appropriately segregated exchange of collateral or the appropriate and proportionate holding of capital. As can be seen from the above the proposed measures are far-reaching. The Regulation will force the non-financial counterparties to have complex risk-management departments. The only premises for such requirements will be:

1) taking positions in OTC derivative contracts exceeding the clearing threshold and

2) the finding that the said contracts are not cleared by a CCP.

It is ambiguous whether the third premise (speculative i.e. non-commercial character of the contract) is also applicable for qualifying under the said requirements, because Article 8(1) of the Regulation (defining entities subjecting to the new obligations) makes referral only to the Article 7(2) and not to the Article 7(4).


Similarly to specifying the details for the thresholds, also in the area of non-clearing–eligible derivatives the Commission is given powers to adopt regulatory technical standards. The said standards will relate to arrangements and levels of collateral and capital required for compliance with the said requirements and to specifying the maximum time lag between the conclusion of an OTC derivative contract and the confirmation referred to above.


So, the especially the collateral and capital requirements are sensitive to the market participants because if they are set on an excessively ambitious levels may force some weaker firms out of the market. In parallel, the Regulation leaves the said levels to the discretion of the Commission thus creating additional market risk in the longer perspective.