European Union: Update On Third Country Equivalence Under EMIR

The European Commission has adopted an "equivalence" decision on the derivatives regulatory regimes for derivatives clearing organisations in the United States. This follows the decisions adopted in November 2015 for Canada, Mexico, the Republic of Korea, South Africa and Switzerland and in October 2014 for Australia, Hong Kong, Japan and Singapore. Further decisions are awaited for other jurisdictions and for other derivatives regulatory requirements. This paper summarises the equivalence decisions and technical advice that has been produced to date.


Under the European Market Infrastructure Regulation ("EMIR")1, the European Commission may adopt implementing acts declaring that the legal, supervisory and enforcement arrangements of a non-EU country are equivalent to the requirements in EMIR2. Such a decision is necessary for a central counterparty ("CCP") or trade repository ("TR") established in a non-EU country to provide their services in the EU. EMIR also requires equivalence decisions to be issued in respect of other obligations. These are relevant in circumstances where one of the counterparties to a trade subject to EMIR is established outside the EU, as an equivalence decision would permit both counterparties to comply with the non-EU country's equivalent regime instead.

Under EMIR the European Commission may request the European Securities and Markets Authority ("ESMA") to provide technical advice as to the equivalence of some non-EU jurisdictions which host major derivatives markets or CCPs which have applied for recognition. ESMA's assessment is a factual comparison of the rules in the relevant jurisdiction with the EU rules and advice to the Commission on how any differences might affect an equivalence decision or could be incorporated into an equivalence decision. The scope of the advice covers the recognition of non-EU CCPs and TRs, the clearing obligation, reporting obligation, non-financial counterparties ("NFCs"), portfolio reconciliation, dispute resolution, portfolio compression and margin requirements.

The Commission's equivalence decision will be based on ESMA's advice and an assessment of the outcomes of the third country's rules, including whether the rules mitigate any risks faced by market participants in the EU to the same extent that the EMIR rules are intended to do so. The trading volumes in a jurisdiction can be relevant to an assessment of the risks posed to clearing members of a third country CCP. Those CCPs with larger trading volumes operating in larger financial markets will need to be subject to more rigorous risk mitigation requirements than those operating in smaller financial markets.3

US Equivalence

On 10 February 2016, the European Commission and the Commodity Futures Trading Commission ("CFTC") announced a common approach on the supervision of CCPs operating in the US and EU (the "Common Approach").4 The agreement was necessary because key differences between the EU and US regimes had been preventing the Commission from adopting an equivalence decision for the US. Notably, the crucial discrepancy on minimum liquidation periods5 has been resolved - the EU liquidation period for exchange-traded futures contracts must be at least two business days whereas in the US it is one day and for customer positions, EU rules provide that clearing members may post margin on a net basis whereas the US rules require clearing members to post margin on a gross basis.

The European Commission has now adopted an equivalence decision.6 The decision mirrors the stipulations set out in the Common Approach. The equivalence decision declares that the legal and supervisory arrangements of the CFTC for derivative clearing organisations ("DCOs") that have been declared systemically important derivatives clearing organisations ("SIDCOs") by the Financial Stability Oversight Council or DCOs that have opted into additional standards similar to the SIDCO regime (so-called "Subpart C DCOs") are equivalent to the EU requirements under EMIR, provided that the DCO's internal rules and procedures meet the following requirements:

  • For derivatives contracts executed on regulated markets, a minimum liquidation period of two days for initial margin is applied to clearing members' proprietary positions;
  • For all derivative contracts, measures are in place to limit procyclicality which are equivalent to the options under EMIR;7  and
  • The DCO has sufficient pre-funded available resources enabling it to withstand the default of at least two clearing members to which it has the largest exposures under extreme conditions.

The equivalence decision provides that these additional conditions will not apply to US agricultural commodity derivatives traded and cleared domestically within the US, in light of the nexus of these contracts with the US economy, the importance of the contracts to US agricultural providers and the low degree of systemic interconnectedness of agricultural products with the rest of the financial system.

The CFTC is responsible for oversight of derivative contracts other than those based on a single security (a bond or share) or loan or narrow-based index of securities (which are subject to the oversight of the Securities and Exchange Commission ("SEC")). US CCPs that provide clearing services for those derivatives contracts that fall within the remit of the SEC are not covered by the equivalence decision. If a US CCP provides clearing services for derivatives under the purview of both the CFTC and the SEC, the decision relates only to those services that fall within the CFTC's jurisdiction.

Margin for Customer Positions

The equivalence decision also states that the US rules on margin for customer positions are equivalent to the EU rules. The Commission has determined that although the details of the US rules differ with those of the EU rules, the outcomes are equivalent. EU rules require margin for customer accounts to be collected on a net basis whereas the US rules require it to be collected on a gross basis. According to the Commission, the difference between the net and gross margin collection results in the same outcomes "which compensates for the difference in the liquidation period."

ESMA published proposals in December 2015 to amend the liquidation period for customer positions to allow for one day gross margin to be posted provided that certain conditions were met, including that the identity of the client is known to the CCP, the client is not an affiliate of a clearing member and the CCP implements procedures to: (i) calculate for each account, initial and variation margin requirements at least every hour during the day; and (ii) collect margins within one hour where the new margin requirement meets certain thresholds. Considerable industry concern was expressed in response to ESMA's proposals, including that the conditions are not required under the US rules.

Recognition Under EMIR

SIDCOs and Subpart C DCOs may therefore apply to ESMA for recognition under EMIR but will need to show that their internal rules and procedures meet the requirements set out above to obtain recognition. Following the announcement of the EU-US agreement in February 2016, ESMA announced that it will do everything in its powers to shorten the 180 day period that it has to make a recognition decision for CCPs under EMIR. The impetus for this approach is the incoming clearing obligation for certain IRS entered into with an EU counterparty. As a result, it seems likely that those DCOs that clear IRS may have their applications for recognition prioritized over the applications of other DCOs. Although ESMA has committed to act speedily, the DCOs may also need to implement changes to their rules and procedures to ensure that the additional requirements for recognition are met.

US Comparability Determination

Consistent with the Common Approach, the CFTC adopted, on 16 March 2016, its own substituted compliance determination for DCOs that are also EU CCPs. According to the determination, an EU CCP could comply with the EU requirements on financial resources, risk management, settlement procedures and default procedures instead of the CFTC requirements. Such substituted compliance will be available to EU CCPs that are currently registered as DCOs as well as EU CCPs seeking to become registered as DCOs. The CFTC staff has also clarified that certain CFTC requirements will not apply to non-Futures Commission Merchant clearing members (and their customers) of EU CCPs that are DCOs.

To continue reading this article please click here.


1 Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories.

2 You may like to read our client note, "Extraterritoriality Revisited: Access to the European Markets by Financial Institutions, Funds and Others from Outside Europe," available here. The note sets out the requirements for non-EU entities to gain access to the EU markets under various European legislative requirements.

3 For example, the equivalence decision for South Africa notes that over the past three years, the total value of derivatives cleared in South Africa was less than 1% of the total value of derivatives cleared in the EU.

4 You may like to see our client note, "EU-US Agreement on Regulation of Central Counterparties," dated 16 February 2016, available here.

5 A liquidation period is the time period used for the calculation of the collateral that the CCP estimates is necessary to manage its exposure to a defaulting member. Essentially, a CCP examines the maximum predicted possible price movement over the liquidation period to calculate a baseline figure for initial margin.

6 The decision was published in the Official Journal of the European Union on 16 March 2016 and is available here.

7 EMIR provides for the following options: a) applying a margin buffer at least equal to 25 % of the calculated margins which it allows to be temporarily exhausted in periods where calculated margin requirements are rising significantly; (b) assigning at least 25 % weight to stressed observations in the lookback period calculated under EMIR; (c) ensuring that its margin requirements are not lower than those that would be calculated using volatility estimated over a 10 year historical lookback period.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions