ABBL

On 9 February 2012, the Internal Market Commissioner Michel Barnier welcomed the work done by the major EU Institutions (European Parliament, Commission and Council) that have finally reached an agreement on the contested EMIR proposal (mainly access to and from non-EU countries, procedures for licensing the clearing houses and intra-group exposures). This would mark the entry of a new actor in the legislative process: Indeed, ESMA will now be required to prepare with the EU Commission secondary level legislation. It will define inter alia the key question of which products will be eligible to centralised clearing (products that are sufficiently standardised) as well as what would be the triggers for exemption for non-financial companies, and determine guidelines for the risk model used by these clearing houses (CCP).

In terms of timeline, the big goal is to be ready with regulation effective by 1 January 2011 in order not to appear weak at the G20 (commitment at the Pittsburgh meeting in fall 2009). This timeline will probably be met. It is likely that the actual impact on financial institutions, bar the CCPs, will be effective a bit later.

There are various explanations for this: First of all, a vote on the agreed text should pass in the European Parliament, to be scheduled in March. It is only at this stage that a formal mandate can be sent to ESMA, which, in an optimistic scenario, will have about 6 months to deliver a proposal on the tricky questions raised above.

Then the EU Commission will have to endorse (and translate into level 2 legislation). Thus in terms of timing, this is likely to be March + 6 months, meaning December, plus another 3 months: thus Q1 2013. The level 1 text can only enter into force 20 days after publication in the Official Journal with the translation process probably again somewhere in December.

Thus, on the 1 January 2013, EU markets should have the legal framework but, based on the above assumption, the actual migration will probably not be effective until well into the first half of 2013. In any case, what is certain is that trading of derivatives will change dramatically in the next 12 to 18 months and still a bit more so when MiFID II will go live, since it will force trading on accepted market places.

More: EMIR Dossier