On 4 December 2024 the EU’s Official Gazette published Regulation (EU) 2024/2987 of the European Parliament and of the Council amending the EMIR and other European regulations related to measures for the mitigation of excessive exposure to third-country central counterparties (CCPs) and improve the efficiency of Union clearing markets. Such amendment to the EMIR, commonly known as EMIR 3, shall come into force on 24 December 2024.
The major changes introduced by the regulation are related to the implementation of certain obligations focused on the increase of volumes cleared by EU CCPs, particularly in some clearing services, the systemic relevance of which for the Union has been identified as very substantial. To such effects, the EMIR 3 establishes an obligation related to active accounts for certain financial and non-financial counterparts that are already subject to central clearing obligations. Such entities must hold at least one operational account with a CCP established in the European Union and, if the corresponding activity exceeds some additional thresholds, conduct a representative number of transactions to ensure its functionality.
Alongside the implementation of such obligations, a number of reporting and information duties to the competent authorities are introduced on how the above requirements are being met, which will be subsequently presented before the new committee within ESMA, the Joint Monitoring Mechanism (JJM), along with different information regarding entities’ activity in third-country CCPs.
Additionally, some complementary adjustments to the EMIR not related to active account requirements have been introduced, given prior experience with the application of this regulation. For example, the calculation of accounted derivative positions to the effects of comparison with the clearing thresholds is modified, along with other aspects, using bilateral contracts as a reference instead of derivatives contracts not traded on regulated markets. Nonetheless, the introduction of said calculation method requires prior development of Tier 2 standards.
Waivers to the central clearing obligation are also extended to transactions originating from providers of post-trade risk reduction services (PTRRS), such as portfolio compression or counterparty risk optimisation, provided that they meet certain criteria and are carried out by authorised and independent entities. Moreover, some criteria are modified to benefit from such exemption, particularly in cases where counterparties of entities established in the EU have their registered address in a third country.
In relation to central counterparties, efforts have been made to ensure that the processes for the authorisation of applications or validation of changes to the model are faster than they currently are. To do so, maximum terms within which such requests must be resolved have been determined, as well as the different types of requests that competent authorities shall expect to receive.
Additionally, it was an opportunity to make certain adjustments to the existing obligations of CCPs or their users. For example, the regulation requires greater transparency in margin calculations, forcing CCPs to publicly disclose prices and fees associated to their services, as well as to provide clearing members more thorough simulation tools. Said tools should enable clearing members, and, therefore, their clients, to determine the additional initial margins that might be required.
Moreover, CCPs, clearing members and clients providing clearing services should report on their initial margin models clearly, fully and transparently.
In this regard, considering that the technical standards provided in this regulation to complete Tier 1 will not be available at the date of entry into force of EMIR 3, subject entities are unclear how some of said obligations should be complied from such date forward. As the Spanish authority to which the Securities Markets and Investment Services Law delegates supervision of the obligations derived from EMIR for all Spanish entities, the CNMV wishes to disclose the criteria it will apply in the supervision of these requirements until the corresponding developments of EMIR 3 have been implemented and come into force.
Criteria for the application of EMIR 3
Implementation of active account requirements
In regards to the active account requirement (Article 7a), in compliance with EMIR 3, entities will have a six-month term, after 24 December 2024, to sign a compensation agreement through an EU CCP which allows conformity with said requirements.
Should an entity already hold an account with an EU CCP which allows its compliance with active account requirements prior to the entry into force of EMIR 3 or enters into such an agreement before 24 June 2025, the CNMV considers that, in any event, the active account maintenance requirements will only apply from the latter date. That is, upon the conclusion of the six months after the date of entry into force of EMIR 3.
Additionally, in the event that Tier 2 standards implementing the active account requirements have not entered into force by 24 June 2025, the CNMV considers, on a preliminary basis, that the entities subject to these obligations may use as a reference the description of such requirements under the proposed regulatory technical standards that ESMA may publish, either as part of a document for consultation or as part of its final report to the European Commission. In any case, the CNMV may, in the future, clarify in more detail how institutions are expected to comply with the active account requirements in such cases.
Form to report on the countervailability of active account obligations
Entities subject to the obligation to hold an active account must notify such circumstance to the CNMV and ESMA after 24 December 2024. Notification to the CNMV can be completed through the form Template for the notification on maintenance of an active account and to be forwarded to: notificaciones.emir@cnmv.es
Transparency of the margin call regime - CCP
In conformity with Article 38 of EMIR, CCPs must provide their clearing members the following: i) detailed information on the initial margin models, including the methodologies applicable to the add-ons they may use; and ii) a margin simulation tool for different scenarios, including situations of stress.
These requirements extend the existing provisions under EMIR REFIT and will be further developed through Tier 2 standards developed by ESMA. Under such circumstances, the CNMV considers that, while said Tier 2 technical standards are being developed, and given that the general transparency obligation is applicable after 24 December 2024, CCPs should update the documentation available to their users regarding the functionality of their margin model, including add-on methodologies and continuing to offer existing margin simulation tools under EMIR REFIT. The latter should also provide simulations that do not solely reflect current market scenarios, but also situations of stress as defined by ESMA in the fifth stress test exercise for CCPs.
Transparency of the margin call regime – Members and clients
In line with Article 38 of EMIR, providers of clearing services (members and clients of CCPs providing clearing services to their clients) must provide their clients the following information: (a) the functioning of CCPs’ margin models; (b) situations and conditions that may lead to margin calls by CCPs; (c) the procedures to determine the amounts clients must contribute; and (d) simulations of margin requirements under different scenarios. Said simulations must include margins required by the corresponding CCP and any additional margin required by the provider of clearing services.
To the extent that the Tier 2 technical standards developing the requirements under EMIR 3 are being drafted, the CNMV considers compliance with the requirements related to points (a), (b) and (c) herein can be achieved by providing clear and sufficient information to its clients on such matters. In regards to point (d), providers of clearing services will be able to apply the information already provided by CCPs, facilitating access to central counterparties' margin simulation tools and clearly differentiating any additional margin required by the service provider itself.
Authorisation for the use of margin exchange models in bilateral contracts
For the first time, EMIR 3 introduces a pre-authorisation regime for internal models of initial margin used as a risk mitigation technique in non-cleared OTC derivative contracts. Financial and non-financial entities applying such models must request authorisation from the competent authorities, including the CNMV in Spain, before using it or making changes to such models. Should the model be based on a pro forma model, such as the ISDA SIMM, additional validation by EBA will be required prior to acquiring the CNMV’s authorisation. During the transitional period, until EBA establishes its central validation role under EMIR 3, the CNMV will be responsible for the execution of the required validations.
In this context, until the regulatory technical standards and, eventually, the guidelines, which develop the details of the authorisation and validation process for internal margin exchange models are adopted, the CNMV, following EBA's recommendations, believes that entities may continue to make use of the existing models and, if any modifications are made to such extent, they must notify such circumstance as an update to the initial application by submitting the information specified in EBA's statement. For further detail, it is available the EBA no-action letter criteria adopted by the CNMV in relation to the new margin exchange requirements.