All companies that trade in derivatives are to be categorised according to EMIR. Among other things, the categorization of companies affects the clearing and risk management requirements applying to the company.
- Financial counterparties (FC), for example, banks, insurance companies, fund management companies and securities companies (operations which require a license) which are
- subject to the clearing obligation (FC+)
- not subject to the clearing obligation (FC-)
- Non-financial counterparties (NFC), e.g. other companies that trade in derivatives, which are
- subject to the clearing obligation (NFC+)
- not subject to the clearing obligation (NFC-)
When trading in OTC derivatives, you are obliged to inform the counterparty of the customer category to which you belong.
According to EMIR, OTC derivatives contracts must be cleared if the following conditions are fulfilled:
- There is a central counterparty (CCP) that is authorised to clear the derivative instrument concerned
- The European Commission has made a decision that the instrument is to be cleared
- Both parties in transaction are subject to the clearing obligation
All transactions relating to derivative contracts, both OTC and exchange traded, entered into by a company, must be reported to a specific trade repository.
The company itself is responsible for ensuring that its transactions are reported. However, since 18 June 2020, financial counterparties are responsible for reporting on behalf of counterparties classified as NFC- the OTC derivative contracts concluded between them. This means that Handelsbanken reports these OTC transactions for all its NFC- counterparties.
However, companies classified as NFC- may choose to report their OTC derivative contracts themselves. In that case, the NFC- shall inform the financial counterparty with which they have concluded OTC derivative contracts of their decision prior to reporting those transactions to a trade repository.
A company responsible for reporting its transactions may delegate the processing to another party.
Handelsbanken provides assistance
If your company is classified as a FC+, FC- or NFC+, Handelsbanken offers to report on your behalf the derivative transactions that your company carried out with us. In order to provide this assistance, Handelsbanken will require:
- a signed agreement for the service (“Agreement on reporting derivative transactions”),
- an active LEI (Legal Entity Identifier) for which your company must apply in advance.
Legal Entity Identifier (LEI)
A prerequisite for reporting is that your company has an active LEI, for which the company must apply to certain approved administrative organisations. These are entitled to charge a fee for the international ID number.
For more information, a list of approved administrative organisations and details of how to apply for an LEI, can be found on the Global Legal Entity Identifier Foundation (GLEIF)Opens in a new window website.
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, at 12-month intervals, calculate their aggregate average nominal OTC position at the month-end for the previous 12 months.
- OTC transactions carried out with the purpose of hedging are to be excluded
- For Groups, all calculations are to be combined.
All Non-financial counterparties (NFC-) which do not make calculations, or which calculate and are above one or more clearing thresholds, will be classed as NFC+. They will then be obliged to clear, and will be subject to stricter requirements regarding risk mitigation measures.
All companies which do not make calculations, or which calculate and are above one or more clearing thresholds, must immediately notify ESMA and the Swedish Financial Supervisory Authority.
For more details, see the ESMAOpens in a new window website
For more details, see the Swedish Financial Supervisory AuthorityOpens in a new window website
The following clearing thresholds apply:
OTC financial derivatives
|1 mdkr EUR|
OTC stock derivatives
|1 mdkr EUR|
OTC interest rates derivatives
|3 mdkr EUR|
OTC fX derivatives
|3 mdkr EUR|
|OTC commodity derivatives och other OTC derivatives||3 mdkr EUR|
Risk mitigation techniques
Confirmations: Every company must promptly confirm its OTC derivative transactions. For non-financial companies companies below all thresholds (NFC-), the requirement is that the company must confirm its transactions within two days of the transaction date at the latest.
Portfolio reconciliation and Dispute resolution: Since autumn 2013, it has been mandatory to have a clearly defined and predetermined procedure for reconciliation of outstanding derivative contracts and collateral. Equally, there must be established procedures for resolving any disputes regarding such derivative contracts.