Clearing obligation

Find out more about the clearing obligation under Article 4 of EMIR, which takes effect from 21 June 2016.

The clearing obligation under Article 4 of EMIR requires that all OTC derivative contracts (that are entered into or novated on or after the relevant clearing obligation start date) will be subject to mandatory clearing and must be cleared in an EMIR EU authorised, or non-EU recognised, CCP.

This obligation will take effect from 21 June 2016 subject to phase-ins that are based on firms’ categorisation and derivatives volumes. Please refer to the implementation timetables below for more detailed information on phase-ins.

Who is caught by the clearing obligation

The clearing obligation applies to contracts between any combination of financial counterparties (FCs) and non-financial counterparties who exceed the clearing threshold (NFC+s). See non-financial counterparties for further information on the clearing threshold.

Which derivatives are subject the clearing obligation

Currently, EMIR mandates clearing for the following types of derivatives:

Interest Rate Derivatives denominated in the G4 Currencies

These include certain classes of OTC interest rate derivatives contracts denominated in the G4 currencies (EUR, GBP, USD and JPY). These classes are set out in the Annex to the Delegated Regulation, and include the following types of contract:

  • fixed to-float interest rate swaps (IRS)
  • basis swaps
  • forward rate agreements
  • overnight index swaps

Credit default derivative contracts

The specific classes that are within scope are set out in the Annex to the Delegated Regulation and include the following types of contracts:

  • untranched iTraxx Index credit default swaps (Europe Main, 5-year tenor, series 17 onwards, with EUR as the settlement currency)
  • untranched iTraxx Index credit default swaps (Europe Crossover, 5-year tenor, series 17 onwards, with EUR as the settlement currency)

Interest Rate Derivatives denominated in the non-G4 Currencies

These include certain classes of OTC interest rate derivatives contracts denominated in some non-G4 currencies (SEK, PLN and NOK). These classes are set out in the Annex to the Delegated Regulation, and include the following types of contract:

  • Fixed to-float interest rate swaps (IRS)
  • Forward Rate Agreements

Firm categorisation

Firms and their derivatives counterparties may fall within any of the 4 EMIR clearing categories as listed below.

  • Category 1: Firms that are already clearing members of a CCP. A list of clearing members is publicly available on the relevant CCP websites.
  • Category 2: Non Category 1 firms whose group’s aggregate month-end average of outstanding notional amount of OTC derivatives is above €8bn (assessed over Jan/Feb/Mar).
  • Category 3: Non Category 1 or Category 2 firms whose group’s aggregate month-end average of outstanding notional amount of OTC derivatives is below €8bn (assessed over Jan/Feb/Mar).
  • Category 4: Non-financial counterparties.

Firms will need to determine their own clearing categorisation as well as determine the clearing category of their counterparties in order to know when the clearing obligation and/or the frontloading obligation will apply.

Frontloading

Under EMIR there is also a frontloading requirement which requires financial counterparties in Category 1 and Category 2 to clear relevant OTC derivative contracts entered into or novated on or after the given frontloading start dates. Please refer to the implementation timetables below for more detailed information on the frontloading start dates.

The frontloading requirement sets out that these contracts must be cleared by the dates on which the clearing obligation takes effect for these 2 firm categories.

There is no frontloading requirement for non-financials in Categories 1 and 2, nor for Category 3 and 4 firms.

Timetable for implementation

Timetable for IRS (denominated in the G4 Currencies – EUR, GBP, USD and JPY)

Contract between Frontloading obligation Clearing obligation
Cat 1 and Cat 1 21 Feb 2016 for FCs 21 June 2016
Cat 2 and Cat 1/2 21 May 2016 for FCs 21 December 2016
Cat 3 and Cat 1/2/3 N/A 21 June 2017
Cat 4 and Cat 1/2/3/4 N/A 21 December 2018

Timetable for CDS

Contract between Frontloading obligation Clearing obligation
Cat 1 and Cat 1 9 October 2016 for FCs 9 February 2017
Cat 2 and Cat 1/2 9 October 2016 for FCs 9 August 2017
Cat 3 and Cat 1/2/3 N/A 9 February 2018
Cat 4 and Cat 1/2/3/4 N/A 9 May 2019

Exemptions from the clearing obligation

Under EMIR there are exemptions from the clearing obligation for:

  • intragroup transactions (provided certain conditions are met)
  • certain pension scheme arrangements

See the exemptions and notifications page for more information.