What is EMIR?

Based on the experiences of the 2008 financial market crisis, the heads of state and government of the leading industrial nations at the 2009 G20 summit in Pittsburgh decided to increase the transparency and safety of OTC (over-the-counter) derivatives trading. The G20 leaders specifically decided that in future any standardised OTC derivatives would have to be cleared through central counterparties and that OTC derivatives must be reported to trade repositories.

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 (European Market Infrastructure Regulation – EMIR) has been in force since August 2012 to implement these objectives and create a uniform supervisory framework regarding central counterparties (CCPs). EMIR has been revised in the EMIR Regulatory Fitness and Performance programme (EMIR Refit) and came into force on 17 June 2019.

Who is affected?

The EU Regulation contains requirements for the parties to derivative transactions. In this respect, the Regulation differentiates between financial counterparties and non-financial counterparties. Pursuant to Article 2(8) of EMIR, a financial counterparty is defined as:

• any investment firm authorised in accordance with Directive 2014/65/EC;
• any credit institution authorised in accordance with Directive 2013/36/EC;
• any insurance undertaking or reinsurance undertaking authorised in accordance with Directive 2009/138/EC;
• any UCITS and, where relevant, its management company, authorised in accordance with Directive 2009/65/EC, unless that UCITS is set up exclusively for the purpose of serving one or more employee share purchase plans;
• any institution for occupational retirement provision (IORP) as defined in point (1) of Article 6 of Directive (EU) 2016/2341 of the European Parliament and of the Council;
• any alternative investment fund (AIF), as defined in point (a) of Article 4(1) of Directive 2011/61/EU which is either established in the Union or managed by an alternative investment fund manager (AIFM) authorised or registered in accordance with Directive 2011/61/EU, unless that AIF is set up exclusively for the purpose of serving one or more employee share purchase plans, or unless that AIF is a securitisation special purpose entity as referred to in point (g) of Article 2(3) of Directive 2011/61/EU, and, where relevant, its AIFM established in the Union.
• any central securities depository in accordance with Regulation 909/2014/EU

For purposes of the Regulation, all other entities established in the EU are to be classified as non-financial counterparties (see also non-financial counterparties).

What is governed by the Regulation?

The Regulation contains the following elements in particular:

A clearing obligation applies to standardised OTC derivatives.

The additions to EMIR Refit mean that from now on not only non-financial counterparties but also financial counterparties will be classified according to whether the aggregate gross notional volume of the OTC derivative transactions of the FCs and NFCs consolidated within the group is below or above the clearing threshold, whereby the latter will result in the following notification requirements:

Under Article 4a of EMIR, financial counterparties are required to notify BaFin and ESMA if they exceed the clearing threshold or if they do not calculate their positions. Financial counterparties that do not calculate their positions, or do calculate their positions and exceed the clearing threshold, are subject to the clearing obligation for all classes of OTC derivatives.

Under Article 10 of EMIR, non-financial counterparties are required to notify BaFin and ESMA if they exceed the clearing threshold or if they do not calculate their positions. Non-financial counterparties that do not calculate their positions are subject to the clearing obligation for all classes of OTC derivatives. Non-financial counterparties that do calculate their positions and exceed the clearing threshold are only subject to the clearing obligation for the classes of derivatives in which the clearing threshold was exceeded. Moreover, non-financial counterparties can exclude from the calculation OTC derivative contracts that are objectively measurable as reducing risks relating to their commercial activity.

If the results of the calculation show that the clearing threshold has not been exceeded, a notification to BaFin and ESMA is not required. However, after a year the entities are required to review whether their positions are still below the clearing thresholds. But even then, a notification is only necessary if this review leads to a change in the status (subject to the clearing obligation/not subject to the clearing obligation).

The contracting parties must also comply with special risk-management requirements in the case of transactions which, as a result of their structure, are not suitable for central clearing.

In order to increase transparency, derivative transactions must be reported to a trade repository. The EU Regulation also governs the requirements for the authorisation and continuous monitoring of central counterparties and provides for closer cooperation between the supervisory authorities. The responsibility for supervising the trade repositories has been therefore transferred to the European Securities and Markets Authority (ESMA). The provisions of the EU Regulation are directly applicable in Germany.

To which financial instruments does the Regulation apply?

OTC derivatives are derivatives within the meaning of points (4) to (10) of Section C of Annex I to Directive 2004/39/EU (Markets in Financial Instruments Directive – MiFID), which are not executed on a regulated market within the meaning of Article 4(1)(14) of Directive 2004/39/EC or on a third-country market considered equivalent to a regulated market in accordance with Article 19(6) of Directive 2004/39/EC. However, the requirement regarding reporting to trade repositories applies to all derivatives within the meaning of the aforementioned Directive.

What obligations must financial and non-financial counterparties comply with?

When the clearing obligation for certain groups of derivative contracts is imposed, subject to potential transitional periods, financial counterparties and non-financial counterparties whose OTC derivative volume exceeds a certain threshold are obliged to clear such OTC derivative contracts via a CCP.

To date, the following legal acts have been adopted by the Commission:

• Commission Delegated Regulation (EU) No 2015/2205 (OJ of 1 December 2015, L 314/18);
• Commission Delegated Regulation (EU) No 2016/592 (OJ of 19 April 2016, L 103/5);
• Commission Delegated Regulation (EU) No 2016/1178 (OJ of 20 July 2016, L 195/3);
• Commission Delegated Regulation (EU) No 2017/751 (OJ L 113/15).

The current situation with regard to the interest rate, equity, credit and foreign exchange derivative classes can be accessed on the ESMA website.

Moreover, financial and non-financial counterparties have the obligation to monitor whether they are exceeding the clearing thresholds set out in EMIR and in the technical standards and are thus subject to the clearing obligation and further risk-management requirements regarding bilaterally traded contracts.

EMIR imposes special risk-management requirements regarding bilaterally traded OTC derivative contracts. The technical standards define these requirements in greater detail. In particular, the technical standards lay down the requirement that transactions in OTC derivatives be confirmed by the counterparties – preferably by electronic means – within a certain period.

Financial counterparties and non-financial counterparties that have exceeded the threshold referred to in Article 10 of EMIR must fulfil additional risk-management requirements. This also includes the collateralisation of OTC derivatives that are not centrally cleared. The details are stipulated in Commission Delegated Regulation (EU) No 2016/2251.

Furthermore, financial counterparties and non-financial counterparties are required to report all transactions in derivatives (including exchange-traded derivatives) to trade repositories (see "Reporting obligation").

What action is required?

Clearing and margin requirements

Option regarding calculation or non-calculation of the clearing threshold

Under EMIR Refit, financial counterparties and non-financial counterparties are able to choose whether to calculate their positions to determine whether they exceed the clearing threshold. Counterparties that do not carry out this calculation promptly after the changes come into force must inform BaFin and ESMA of this without undue delay (case 1). They will then be subject to the clearing obligation for all asset classes.

If counterparties decide to calculate their positions against the clearing thresholds, the aggregate month-end average positions for the previous 12 months in the respective derivative classes named below are to be used. The calculation must be carried out at whole-group level. BaFin and ESMA are to be informed without undue delay if the clearing threshold is exceeded (case 2).

The clearing thresholds are set out in Article 11 of Commission Delegated Regulation (EU) No 149/2013. These are EUR 1 billion for OTC credit derivative contracts, EUR 1 billion for OTC equity derivative contracts, EUR 3 billion for OTC interest rate derivative contracts, EUR 3 billion for OTC foreign exchange derivative contracts and EUR 3 billion for OTC commodity derivative contracts and other OTC derivative contracts (all values in terms of gross notional value). Non-financial counterparties are only to take into account positions of non-financial counterparties in the group and are not to take into account OTC derivative contracts that are objectively measurable as reducing risks (“hedging”). Financial counterparties are to take into account positions of financial and non-financial counterparties in the group.

If the results of the calculation show that the clearing threshold has not been exceeded, a notification to BaFin and ESMA is not required.

Scope of the clearing obligation for financial and non-financial counterparties

Financial counterparties that do not calculate their positions are subject to the clearing obligation for all classes of OTC derivatives (case 1). Financial counterparties that do calculate their positions and exceed the clearing threshold are also subject to the clearing obligation for all classes of OTC derivatives (case 2).

Non-financial counterparties that do not calculate their positions are subject to the clearing obligation for all classes of OTC derivatives (case 1). Non-financial counterparties that do calculate their positions and exceed the clearing threshold are only subject to the clearing obligation for the classes of derivatives in which the clearing threshold was exceeded (case 2). Moreover, non-financial counterparties (unlike financial counterparties) can exclude from the calculation OTC derivative contracts that are objectively measurable as reducing risks relating to their commercial activity (“hedging”).

The non-financial counterparties that exceed the thresholds should note that exceeding these thresholds also means that the requirements under Article 11 of EMIR, including the collateralisation requirement, are to be met for OTC derivatives in all asset classes. Financial counterparties are always required to meet the requirements under Article 11 of EMIR for OTC derivatives, regardless of any exemptions from the clearing obligation.

Deadline for compliance with the clearing and collateralisation requirement, recalculation before deadline for compliance

Counterparties are required to comply with the clearing obligation within four months after submitting the above notification to the supervisory authorities (case 1 or case 2) if they are subject to the clearing obligation for the first time. Counterparties that were already subject to the clearing obligation remain so.

These counterparties have a period of four months in which they have the option of providing evidence to BaFin and ESMA that they have dropped back below the clearing threshold. If such evidence is provided, the clearing obligation no longer applies.

In this context, these counterparties must be in a position to demonstrate to BaFin and ESMA (at any time) that the calculation does not result in a systematic underestimation of the positions. This would be the case, for example, if the counterparty systematically made adjustments shortly before determining the month-end position such that it was under the clearing threshold.

Frequency of calculations and notifications to BaFin and ESMA

No calculation (case 1):

The notification stating that no calculation has been carried out applies until further notice and does not need to be submitted annually. However, BaFin is to be notified of any changes, e.g. new subsidiaries, without undue delay.

Calculation (case 2):

The calculation is to be carried out annually. The results are to be sent to BaFin and ESMA if there are any changes relating to the group’s status with regard to the clearing obligation. In principle, the calculation has to applied on 17th June (reference date). Devitations can occur by falling below the threshold within the one year reference period.

If the counterparty falls below the clearing threshold later in the year, this can be reported during the year. Supporting evidence is to be provided.

In accordance with the principles specified above, the notifications are also to be submitted to ESMA. ESMA has updated its Q&As on this topic.

Reporting to trade repositories

Moreover, counterparties are obliged, since 12 February 2014, to report any new derivative contract.

See Reporting obligation under Article 9 of EMIR.

Risk mitigation techniques

In addition, as of 15 March 2013, the risk-mitigation techniques laid out under Article 11 of EMIR must be applied to new as well as existing contracts. These include the obligation to confirm in a timely manner and to regularly mark-to-market the derivative contracts, to reconcile and compress portfolios, and to resolve disputes.

BaFin believes that, in order for these obligations to be met, contractual agreements with banks and other counterparties are always to be tested for compliance with the requirements set out by EMIR.

Special Arrangements and LEI

Please note that different entities have drafted special agreements for this purpose. If existing or future derivative contracts were entered into under an International Swaps and Derivatives Association (ISDA) Master Agreement, it is possible to sign a corresponding ISDA-EMIR protocol.

A special EMIR annex was developed for contracts entered into under the German Master Agreement. In addition, under certain circumstances, it may be necessary to examine a collateral annex for compatibility with the obligations under EMIR.

BaFin recommends that counterparties consider signing these or other, including bilateral, agreements in order to meet the EMIR obligations.

Entities need a unique legal entity identifier (LEI) in order to fulfil the EMIR reporting obligations. Information on the identification of parties subject to the reporting obligation can be found under "Reporting obligation". Entities which do not have a LEI yet should apply for their LEI immediately if they are subject to the reporting obligation of Article 9 of EMIR.

BaFin advises that a contravention of the EMIR obligations is an administrative offence and may result in proceedings for the imposition of fines.

Amendments to EMIR as of 24 December 2024

Numerous amendments to EMIR will enter into force on 24 December 2024. Many of the new or amended obligations will be laid out in more detail in regulatory technical standards (RTSs) over the coming months. This section outlines the main obligations arising from the legal changes for financial and non-financial counterparties. The guidance provided here is subject to change, for example as a result of further discussions and decisions by ESMA.

Article 7a of EMIR
Obligation to hold an active account

The obligation to hold an active account is regulated in Article 7a(1), first subparagraph, of EMIR. This obligation applies to

• all financial and non-financial counterparties
• that are subject to the clearing obligation upon the entry into force of Article 7a of EMIR on 24 December 2024, or that become subject to the clearing obligation thereafter, and
• that exceed the clearing threshold in one of the categories referred to in Article 7a(6) of EMIR or in aggregate across all the categories.

The categories under Article 7a(6) of EMIR which are subject to this obligation include

• interest rate derivatives denominated in euro or Polish zloty and
• short-term interest rate derivatives denominated in euro.

When determining whether they are subject to the obligation to hold an active account, counterparties belonging to a group subject to consolidated supervision in the Union must consider all derivative contracts referred to in Article 7a(6) of EMIR

• that are cleared by this counterparty or
• that are cleared by other entities within the group to which this counterparty belongs,
• with the exception of intragroup transactions.

The active account must be held at a central counterparty (CCP) that

• is authorised under Article 14 of EMIR and that
• provides clearing services for the derivatives concerned.

The obligated entities defined in Article 7a(1), second subparagraph, of EMIR must

• hold at least one active account at a corresponding CCP and
• clear at least a representative number of trades in that account (representativeness obligation),
• though this representativeness obligation does not apply if the notional clearing volume outstanding is less than EUR 6 billion in the derivative contracts referred to in Article 7a(6) of EMIR.

Notification of the obligation to hold an active account

Financial and non-financial counterparties that are subject to the obligation to hold an active account under Article 7a(1) of EMIR and that are domiciled in the Federal Republic of Germany must review their status after the amendments enter into force and notify BaFin and ESMA once the review is complete. To submit the notification, counterparties are to fill out the form provided by ESMA and send it by email to Artikel7aEMIR@bafin.de and AAR-notifications@esma.europa.eu. Further information on the notification to ESMA can be found in the EMIR - Active Account Notification section on the ESMA website.

Establishing the active account

Entities must establish an active account within six months of becoming subject to the obligation. The active account must fulfil the requirements set out in Article 7a(3) of EMIR, which will be laid out in detail in an RTS. This RTS is available as a consultation paper on the ESMA website. For the transitional period until the RTS enters into force, financial and non-financial counterparties that are subject to the active account obligation should use this consultation paper as guidance and prepare to fulfil the obligations defined therein.

If counterparties obliged to hold an active account have already established an account with a CCP that is authorised under Article 14 of EMIR and provides clearing services for the relevant derivatives in accordance with Article 7a(6) of EMIR, the above statements regarding the requirements set out in Article 7a(3) of EMIR also apply.

Article 7b of EMIR
Monitoring of the active account obligation

Obliged entities must report the information specified in Article 7b(1) and (2) of EMIR to BaFin six months after EMIR enters into force at the earliest. BaFin will provide a reporting form. Pending further clarification of the information channels with ESMA, the information can be submitted by email.

Article 7c of EMIR
Information on the provision of clearing services

BaFin expects companies providing clearing services to inform their clients of the possibility referred to in Article 7c(1) of EMIR and the fees described in Article 7c(2) upon the entry into force of these articles and periodically thereafter.

Further requirements may arise at a later date as a result of the planned RTS.

Article 7d of EMIR
Information on clearing activity in CCPs recognised under Article 25 of EMIR

The obligation to provide information on clearing activity in CCPs recognised under Article 25 of EMIR (third-country CCPs) will apply starting one year after EMIR enters into force and will be specified in more detail at a later date in consultation with ESMA.

Article 9(1), second subparagraph, of EMIR

The parent undertaking of an undertaking exempt from the reporting obligation for intragroup transactions under Article 9 of EMIR must report the net aggregate positions by class of derivatives to BaFin on a weekly basis, provided that the parent undertaking is domiciled in Germany and at least one group undertaking meets the conditions of Article 10(1), second subparagraph, of EMIR (status as NFC+). This information can be submitted in consolidated form for all relevant group undertakings (including the parent undertaking).

Please use the form provided (see reporting forms) and send the information to the following email address: Artikel9EMIR-IGT@bafin.de.

Intragroup exemptions from the clearing obligation and collateralisation requirement

In the case of intragroup exemptions from the clearing obligation and collateralisation requirement involving undertakings in third countries, there is no need for an equivalence decision. This has the following consequences for existing intragroup exemptions:

Under Article 3(4) of EMIR, intragroup transactions involving counterparties in third-country jurisdictions identified under Article 29 of Regulation (EU) 2024/1624 as third countries with significant strategic deficiencies in their national AML/CFT regimes or listed in Annex I of the EU list of non-cooperative jurisdictions for tax purposes can no longer be exempted from the collateralisation requirement and the clearing obligation. Existing intragroup exemptions involving counterparties from such countries will soon be revoked.

No action is required for all other exemptions issued on the basis of Article 36 of Delegated Regulation (EU) 2026/2251 or Article 3 of the respective RTSs on clearing. These exemptions remain valid with no need for a new application, assuming the other requirements are met.

This also applies to exemptions granted with reference to equivalence decisions already issued on the basis of Article 11(8) of EMIR. If these exemptions reflect the country-specific equivalence decisions regarding restrictions on exemptions, these restrictions continue to apply. If an undertaking would like to obtain an unrestricted exemption, it must submit a new application.

Article 11 of EMIR
Validation of models for initial margin calculation

The model validation procedure for initial margin calculation models is managed primarily at the level of the European Banking Authority (EBA). In addition to its pivotal role in validating the ISDA SIMM model, the EBA will also issue guidelines and a central RTS. It has already published guidance regarding initial margin models. In particular, this document states that market participants may continue to use calculation models already in use, and the annex contains a preliminary list of the documents that must be submitted in order to initiate the validation process.

Article 38(8) of EMIR
Transparency

Clearing members and clients that provide clearing services (clearing service providers) must fulfil the requirements of Article 38(8)(a) to (c) of EMIR. With regard to the provision of simulation tools in accordance with Article 38(8)(d) of EMIR, these clearing service providers must base the simulations they provide to their clients on the simulations of the CCPs, provided that the margin models of the clearing service providers are based on the corresponding models of the CCPs.

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