Pursuant to EMIR, financial and certain non-financial counterparties have to clear standardised OTC derivatives through a CCP.¹ Alternative methods of risk mitigation, such as collateralisation, must be applied to OTC derivative transactions that do not have to be cleared through a CCP. In addition to the clearing obligation, which has been in force since 2016, Commission Delegated Regulation (EU) 2016/2251 entered into force on 4 January 2017, providing further details of the requirement to collateralise bilateral OTC derivative transactions that are not cleared through a CCP.² Under these provisions, financial counterparties have to provide collateral for OTC derivative contracts that are not cleared centrally. Non-financial counterparties are only subject to this requirement if their volume of derivatives exceeds a threshold. In the period under review, BaFin accompanied the market participants as they implemented the provisions and discussed relevant interpretive issues with the companies and at the European level. Doubt about the specific interpretation of the provisions associated with this was raised in particular by the option to obtain exemption from the collateralisation obligation for transactions conducted within a consolidated or supervisory group. For example, the concept of group company required clarification in this context. Discussion was also required of the specific way the business volume exempted from collateralisation is calculated. Another relevant question was how market participants can identify non-netting jurisdictions.

However, the option for companies to have their transactions within the consolidated or supervisory group exempted from collateralisation is subject to BaFin's approval, unless both counterparties belonging to the group are domiciled in Germany. BaFin received a total of 172 requests to this effect in 2017 (see Table 24 “Notifications and requests”).

Table 24 Notifications and requests

Notifications and requests

BaFin

In parallel, companies that have been subject to the clearing obligation for OTC derivatives since 2016 can request an exemption for intragroup transactions. BaFin received a total of 20 requests to this effect in 2017, compared with as many as 140 in 2016.

The requirements for position limits and position reporting for commodity derivatives laid down in MiFID II have been in force since the beginning of 2018. The provisions of MiFID in this area were introduced to improve the functioning and transparency of the financial and commodity markets and prevent excessive fluctuations in commodity prices. In order to achieve this, now that MiFID II has entered into force, position limits have to be specified on the basis of a methodology determined by ESMA, which a company can hold at an aggregate group level in order to prevent both market abuse and the build-up of market-distorting positions. In preparation, BaFin set indicative limits to this effect and prepared and held hearings on eight general administrative acts in 2017. In parallel, BaFin developed the technical infrastructure for the position reports, because MiFID's entry into force mans that the trading venues have to submit daily reports on the positions in commodity derivatives of their trading participants and their clients.

Footnotes: