In 2012, the European Union (EU) implemented the post-financial crisis G20 agreements on derivatives markets by adopting the European Market Infrastructure Regulation (EMIR). In this Research Note, we assess the impact of two key EMIR obligations – clearing and margining – thanks to the data reported by UK firms on their derivative contracts.
EMIR introduced new requirements on market participants with the aim of improving transparency and reducing counterparty credit risk and operational risk in the derivatives market. In addition to new reporting obligations, EMIR also introduced mandatory central clearing requirements for standardised over-the-counter (OTC) derivative contracts, as well as margin requirements for OTC derivatives that are not centrally cleared.
In this paper, we assess the impact of these two requirements by making use of a sample of the data reported to Trade Repositories (TRs) and made available to us through the reporting obligations.
Based on a sample of UK derivatives data and subject to the data limitations set out in the paper, we find that:
- Giving small firms an exemption from clearing could significantly reduce the burdens on them. EMIR data can help authorities to develop an exemption efficiently and proportionately, without compromising EMIR’s overall objectives.
- The phase-ins implementing the initial margin requirements do not result in the intended gradual increase in the number of counterparties subject to the requirements. Rather there is a sharp increase (by about 10 times) in the very last phase-in.
The analysis presented in this paper is based on data available to us as one of the relevant UK competent authorities. We think that the EMIR review presents a valuable opportunity for similar analysis to be carried out on the wider EU data set. This underlines the importance for regulatory authorities of using market and regulatory data for both making new policies and evaluating existing ones. It will also help to ensure that regulatory policies achieve their intended objectives in the most efficient and proportionate manner for all our markets.