|Intragroup transactions when calculating clearing thresholds under EMIR|
|Friday, 22 March 2013 12:04|
Intragroup transactions when calculating clearing thresholds are counted twice.
The approach to intragroup transactions as regards calculating clearing thresholds was a controversial issue among market participants during the process of drafting EMIR regulatory standards.
Some stakeholders noted that, as for OTC derivatives reducing risks, intragroup OTC derivatives should be excluded from the scope of the calculation of the clearing threshold. Also some responses stressed that the calculation of the clearing threshold should not consider OTC derivative contracts entered into at the group level but only at the level of the legal entity. In this respect, ESMA however has taken the view that these issues are related to provisions in the Level 1 text and the mandate granted by EMIR to develop Level 2 provisions does not extend to these aspects (see Final Report of 27 September 2012, ESMA/2012/600 on Draft technical standards under the Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC Derivatives, CCPs and Trade Repositories).
Another important practical question is whether all entities of the group notify the relevant national competent authority and ESMA, or there should be a single notification per entire group. The ESMA's stance on the issue is that for each Member State in which the group has legal entities which trade OTC derivatives, a notification should be submitted to the national competent authority once the group has exceeded the threshold.
This notification must include, among other things, the names of all NFC group legal entities within that Member State which trade OTC derivatives. The group should also submit a single notification to ESMA, listing all of the NFC group legal entities within the EU which trade OTC derivatives.
Intragroup transactions are placed by EMIR in one important aspect at an disadvantage in comparison with analogous trades with entities from outside the group. The said "discrimination" is reflected in the fact that if two group entities having the character od non-financial counterparties enter into an intragroup transaction with each other, which does not fall within the hedging definition, both sides of the transaction should be counted towards the threshold. The total contribution to the group-level threshold calculation would therefore be twice the notional of the contract. The said handicap does not appear for non-hedging intragroup transactions between one non-financial counterparty and one financial counterparty, only the non-financial counterparty side of the transaction needs to be counted.
The potential intragroup exemptions are elaborated on in greater detail under the following link.