Overview of the Latest Draft Regulatory Technical Standards
Overview of the Latest Draft Regulatory Technical Standards
The latest draft regulatory technical standards (RTS
) on indirect clearing arrangements under EMIR
(ESMA/2016/725) were recently published on 26 May 2016 (Indirect Clearing RTS
These were submitted to the European Commission and it now has three months to decide whether to endorse the technical standards. This two part Blog will provide an overview of the new MiFIR RTS provisions.
Article 1 (Definitions)
- Client means an undertaking with a contractual relationship with a Clearing Member (CM) of a Central Counterparty (CCP) which enables that undertaking to clear its transactions with that CCP.
- Indirect Client means the client of a client of a CM.
Article 2 (Structure of Indirect Clearing Arrangements)
- Indirect Clearing Arrangement or Indirect Clearing Service Arrangement means the set of contractual relationships between the CCP, the CM, the CM Direct Client and CM Indirect Client that allows the CM Direct Client to provide clearing services to an Indirect Client;
Where a CM facilitates Indirect Clearing Services (ICS
) to a Client (Direct Client
), the Direct Client may provide such services to one or more of its own clients (Indirect Client
), provided it meets three conditions.
- Condition 1 is that the Indirect Client: (1) is an authorised credit institution; OR (2) is an investment firm; OR (3) is an equivalent third country credit institution or investment firm; AND (4) it meets all the CM Obligations.
- Condition 2 is that the Direct Client and the Indirect Client must agree the contractual terms of an indirect clearing arrangement (ICA).
Article 3 (CCP Obligations)
- Condition 3 is that these contractual terms must require the Direct Client to honour all the Indirect Client's obligations towards the CM (with regards to transactions arising from the ICA), and must clearly document the scope of this arrangement.
ICAs must not be subject to CCP business practices that act as a barrier to their establishment on reasonable commercial terms. CCPs must therefore open and maintain CCP Accounts
at the request of a CM. The CCP must keep separate records of all Indirect Client positions, must calculate Indirect Client margins, and must collect such sums on a gross basis.
CCPs must also identify, monitor, and manage any material risks that arise from facilitating indirect clearing services and that may affect CCP resilience to adverse market developments.
Article 4 (Clearing Member Obligations)
CMs must publicly disclose general terms for its ICS, including Direct Client minimum financial resources and operational capacity requirements. CMs that offer indirect clearing services must open and maintain a 'Clearing Member Type 1 Account' (CMT1A
) and a 'Clearing Member Type 2 Account' (CMT2A
is an omnibus account with the assets and positions of the Direct Client held for the accounts of its Indirect Clients.
is an omnibus account with the assets and positions of the Direct Client held for the accounts of its Indirect Clients, and also: (1) where the CM ensures that the positions of an Indirect Client do not offset the positions of another Indirect Client; and (2) the CM ensures that the assets held for the account of an Indirect Client cannot be used to cover the positions of another Indirect Client.
CMs must also establish robust procedures to manage a Direct Client default, and must identify, monitor, and manage any material risks arising from facilitating ICS that could affect CM resilience to adverse market developments.
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The European Market Infrastructure Regulation (REGULATION (EU) No 648/2012 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
of 4 July 2012 on OTC derivatives, central counterparties and trade repositories).
The Markets in Financial Instruments Regulation (Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012).
MiFIR Article 30 (Indirect Clearing Arrangements) specifies that the European Securities and Markets Authority (ESMA
) shall develop draft RTS to specify the types of indirect clearing service arrangements, where established, that meet the conditions referred to in paragraph 1, ensuring consistency with provisions established for OTC derivatives under Chapter II of Commission Delegated Regulation (EU) No 149/2013.
This refers to a client as defined in Article (15) of Regulation (EU) No 648/2012 (OTC derivatives, central counterparties and trade repositories).
This refers to an indirect client as defined in Article 1(a) of Commission Delegated Regulation (EU) No 149/2013 (regulatory technical standards on indirect clearing arrangements, the clearing obligation, the public register, access to a trading venue, non-financial counterparties, and risk mitigation techniques for OTC derivatives contracts not cleared by a CCP).
This refers to an arrangement as defined in Article 1(b) of Commission Delegated Regulation (EU) No 149/2013 (regulatory technical standards on indirect clearing arrangements, the clearing obligation, the public register, access to a trading venue, non-financial counterparties, and risk mitigation techniques for OTC derivatives contracts not cleared by a CCP).
See: PART 2
CCP Accounts include: (1) a segregated account for the exclusive purpose of holding the assets and positions of a Clearing Member's Indirect Clients that are managed by the clearing member in a Clearing Member Type 1 Account
; and (2) a segregated account for the exclusive purpose of holding the assets and positions of a Clearing Member's Indirect Clients that are managed by the Clearing Member in a Clearing Member Type 2 Account
Where the assets and positions of several Indirect Clients are managed by CCPs.