EMIR – Regulations for derivative contracts

EMIR is an EU regulation for trading in derivatives. The rules aim to make trading more transparent and reduce risks in the market.

EMIR mainly applies to OTC derivatives. These are derivative contracts traded directly between two parties, for example between a company and Handelsbanken. Some parts of the rules also apply to exchange-traded derivatives, ETD.

The regulation has three main areas:

• Transaction reporting.
• Risk mitigation techniques.
• Clearing requirements for larger corporates.

Companies that trade in derivatives need to be aware of these rules. Read more about EMIR on ESMA’s website.

ESMA Öppnas i nytt fönster

Customer categories

All companies that trade in derivatives must be categorised according to EMIR. The category affects which requirements apply to the company, for example requirements for clearing and risk management.

Financial counterparty, FC
A financial counterparty is, for example, a bank, an insurance company, a fund management company or a securities company.

Financial counterparties are divided into two categories:

• FC+ is subject to the clearing obligation.
• FC- is not subject to the clearing obligation.

Non-financial counterparty, NFC
A non-financial counterparty is another company that trades in derivatives.

Non-financial counterparties are divided into two categories:

• NFC+ is subject to the clearing obligation.
• NFC- is not subject to the clearing obligation.

When trading in OTC derivatives, you must inform your counterparty which category you belong to. You must also inform your counterparty if your category changes.

Svenska Handelsbanken AB is a financial counterparty and is subject to the clearing obligation. This is called FC+.

Clearing obligation

According to EMIR, OTC derivative contracts must be cleared if all of the following requirements are met:

• There is a central counterparty, CCP, that is authorised to clear the derivative instrument concerned.
• The European Commission has decided that the instrument is to be cleared.
• Both parties to the transaction are subject to the clearing obligation.

Transaction reporting

All transactions relating to derivative contracts must be reported to a specific trade repository. This applies to both OTC derivatives and exchange-traded derivatives.

The company itself is responsible for ensuring that its transactions are reported. However, since 18 June 2020, special rules apply to certain OTC derivative contracts.

Financial counterparties are responsible for reporting for both parties when OTC derivative contracts are entered into with a counterparty classified as NFC-. This means that Handelsbanken reports these OTC transactions for all its customers that are NFC-.

A company classified as NFC- may choose to report its OTC derivative contracts itself. In that case, the company must inform its financial counterparty in good time before reporting is made to a trade repository.

A company that is responsible for reporting may also choose to let another party handle the reporting.

Handelsbanken provides assistance with reporting
If your company is classified as FC+, FC- or NFC+, Handelsbanken can report the derivative transactions that your company carries out with Handelsbanken.

In order for us to provide this assistance, the company must have:

• A signed agreement for the service, Agreement on reporting derivative transactions.
• An active LEI, Legal Entity Identifier, for which the company must apply in advance.

Legal Entity Identifier (LEI)
In order for the reporting to work, your company must have an active LEI. LEI is an international ID number for companies.

The company must apply for an LEI from an approved administrative organisation. The number also needs to be renewed every year. The administrative organisation may charge a fee for this.

You can read more about LEI, approved administrative organisations and how to apply on the Global Legal Entity Identifier Foundation (GLEIF) website.

Global Legal Entity Identifier Foundation (GLEIF) Öppnas i nytt fönster

Non-financial counterparties that are not subject to the clearing obligation (NFC-)

All non-financial counterparties that are not subject to the clearing obligation, NFC-, but which use OTC derivatives, must make a calculation every 12 months.

The calculation must show the company’s average nominal OTC position at the month-end for the previous 12 months.

The company should note the following:

• OTC transactions carried out to reduce risk, known as hedging, are not to be included.
• For groups, all calculations are to be combined.

If a company that is NFC- does not make the calculation, or if the calculation is above one or more clearing thresholds, the company will be classified as NFC+.

The company will then be subject to the clearing obligation and stricter requirements for risk mitigation techniques. The company must then immediately inform ESMA and the Swedish Financial Supervisory Authority that it is subject to the clearing obligation.

ESMA Öppnas i nytt fönsterSwedish Financial Supervisory Authority Öppnas i nytt fönster

The following clearing thresholds apply

Risk mitigation techniques

Confirmations
All companies must confirm their OTC derivative transactions as soon as possible.

For non-financial companies below all thresholds, NFC-, a special requirement applies. They must confirm their transactions within two days of the transaction date at the latest.

Portfolio reconciliation and dispute resolution
There must be clear procedures for reconciling outstanding derivative contracts and collateral.

There must also be procedures for resolving any disputes about the derivative contracts.