Regulation

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	Regulation

European swap clearing to start in June 2016

Firms will have to centrally clear certain classes of interest rate swaps starting from 21 June 2016. The clearing obligation in the Europe Union (EU) will enter into force following the publication of the relevant technical standards in the Official Journal on 1 December 2015.

This marks an important milestone in implementing the EU’s post-financial crisis’ derivatives regulation – the European Market Infrastructure Regulation (EMIR) – and follows the G20 commitment to clear all standardised OTC derivative contracts, where appropriate, through central counterparties (CCPs).

The incoming clearing obligation will cover the following classes of OTC interest rate derivatives denominated in the G4 currencies (EUR, GBP, JPY and USD):

fixed-to-float interest rate swaps (also known as plain vanilla);

float-to-float swaps (also known as basis swaps);

forward rate agreements; and

overnight index swaps.

With the overarching goal of reducing systemic risk in the financial system, the clearing obligation requires EU firms to clear certain OTC derivatives through CCPs under EMIR. ESMA has to assess whether the clearing obligation should apply after a national competent authority has authorised a CCP to clear a class of OTC derivatives. ESMA assessed interest-rate OTC derivatives first as they constitute the largest segment of all OTC derivative products. In addition, it is aligned with the clearing mandates in other jurisdictions.

Next Finance , December 2015

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