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EMIR – new regulation concerning derivatives trading

European Markets Infrastructure Regulation (EMIR) is an EU regulation aiming to reduce risks and increase the stability of the European derivatives markets. The regulation has implications especially for trades in Over-The-Counter (OTC) derivatives. OTC derivatives are derivatives which – in contrast to exchange-traded derivatives – are concluded directly between two negotiating parties.

EMIR entered into force in August 2012 and will be gradually implemented in 2013/2015. The regulation is directly applicable in the EU member states and imposes new obligations on companies that trade in derivatives in the context of reporting, clearing and the implementation of certain risk mitigation techniques.

EMIR separates between three different types of entities, and the regulation applies slightly different depending on if you are a financial counterparty, a non-financial counterparty below the clearing threshold or a non-financial counterparty that exceeds the clearing threshold. Examples of financial counterparties include banks, insurance-, fund- and securities companies and managers. You can read more about the clearing threshold here.

A regulatory framework in three parts

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Reporting

From 12 February 2014, all derivative transactions that a company concludes, including those that are traded on an exchange, must be reported to an approved trade repository.

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Clearing

The clearing obligation applies only to transactions that Swed Bank, that is a financial counterparty, concludes with other financial counterparties and companies that exceed the clearing threshold.

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Risk mitigation techniques

For OTC derivatives that are not centrally cleared, certain risk mitigation procedures are mandatory.

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