Under Article 5(2) of EMIR ESMA is required to determine which classes of OTC derivatives should be subject to the clearing obligation and then draft appropriate Regulatory Technical Standards (RTS) within six months of the authorisation (if EU) or recognition (if non-EU) of Central Clearing Counterparties (CCP). With the first CCP having been authorised on 18 March – and nine CCPs in total having been authorised up to 7 July – some ESMA output on clearing was to be expected sooner rather than later.
ESMA has published two Consultation Papers: one in respect of interest rate swaps (IRS) (2014/799) and the other in respect of credit default swaps (CDS) (2014/800). The respective draft regulations can be found in Annex II of each paper.
As far as IRS are concerned the following four classes will be subject to clearing:
- Basis swaps;
- Fixed-to-float interest rate swaps;
- Forwards rate agreements; and
- Overnight index swaps
With regard to CDS it is proposed that European Untranched Index CDS (iTraxx Europe Main and iTraxx Europe Crossover indices) be subject to clearing.
Any responses to the two Consultations will be considered when ESMA drafts its final RTSs for submission to the European Commission for endorsement.
We are informed that the clearing obligation will follow a phased implementation.
The consultation period ends 18 August for 2014/799 (IRS) and 18 September for 2014/800 (CDS).