Which transactions are subject to the clearing obligation?

The clearing obligation is imposed by the EU Commission through a legal act. Pursuant to Article 6 of EMIR, ESMA must maintain a public register containing the derivatives for which there is a clearing obligation in the EU.

Who is subject to the clearing obligation?

If a financial instrument is recorded in the register pursuant to Article 6 of EMIR, a clearing obligation is only applicable if the transaction has been concluded between

• two financial counterparties which fulfil the condition of the second subparagraph of Article 4a(1) of EMIR,
• a financial counterparty which fulfils the condition of the second subparagraph of Article 4a(1) of EMIR and a non-financial counterparty which fulfils the conditions of the second subparagraph of Article 10(1)(b) of EMIR,
• two non-financial counterparties which fulfil the conditions of the second subparagraph of Article 10(1)(b) of EMIR,
• a financial counterparty which fulfils the condition of the second subparagraph of Article 4a(1) of EMIR or a non-financial counterparty which fulfils the conditions of the second subparagraph of Article 10(1)(b) of EMIR, and an entity established in a third country which would be subject to the clearing obligation if it were domiciled in the Union,

and the relevant contract has been entered into or novated (in terms of time) after the day on which the clearing obligation takes effect.

EMIR Refit ends the subsequent transfer of bilateral OTC derivative contracts to a central counterparty for clearing (frontloading) (Article 4(1)(b)(ii) of the old version of EMIR).

At present, a clearing obligation exists for certain interest rate derivatives (see the Annex to Delegated Regulation (EU) 2015/2205 (OJ of 1 December 2015, L 314/18) and the Annex to Delegated Regulation (EU) No 2016/1178 (OJ of 20 July 2016, L 195/3), corrected by the Corrigendum to Commission Delegated Regulation (EU) 2016/1178 of 21 July 2017 (OJ L196/56), and for certain credit derivatives (see Annex to Delegated Regulation (EU) 2016/592 (OJ of 19 April 2016, L 103/5)). An overview of the derivatives subject to the clearing obligation can be found on the ESMA website.

As of when does the clearing obligation apply?

This depends on the status of the respective counterparty. Commission Delegated Regulation (EU) 2015/2205 regarding interest rate derivatives came into force on 21 December 2015, Commission Delegated Regulation (EU) 2016/592 regarding credit derivatives came into force on 9 May 2016, Commission Delegated Regulation (EU) 2016/1178 regarding further interest rate derivatives came into force on 9 August 2016 and Commission Delegated Regulation (EU) (the latter corrected by Commission Delegated Regulation (EU) 2017/751 of 20 July 2017) regarding a later start to the clearing obligation for certain counterparties came into force on 19 May 2017.

While the clearing obligation for financial counterparties in Categories 1 and 2 already applies, financial counterparties in Category 3 – if they are subject to the clearing obligation under Article 4a of EMIR – will be subject to the clearing obligation four months after 17 June 2019, the date on which EMIR Refit came into force.

How is the clearing obligation to be fulfilled?

In order to fulfil the clearing obligation, an association with a CCP must exist. This can be either in the form of clearing membership or an indirect relationship with a CCP.