EMIR Newsflash: ESMA public statement on calculation against clearing thresholds

ESMA has published a statement in respect of the timing of the determination of whether the clearing thresholds have been breached under the proposed EMIR Refit. This is relevant for the purposes of the new calculation methodology set out under the EMIR Refit for NFCs and also for the new category of small FCs.

Under the new methodology in the proposed EMIR Refit, any NFC or FC that wishes to avoid the clearing obligation would need to demonstrate to the relevant national competent authority that its aggregate month-end average position for OTC derivatives for the previous 12 months is below the relevant clearing threshold(s). In addition, if it is above the relevant clearing threshold(s), or if it decides not to make the calculation at all, then it is required to notify immediately ESMA and the relevant national competent authority of that fact.

The drafting of the EMIR Refit is ambiguous as to when that calculation needs to be made. However, the ESMA statement now makes it clear that the calculation must be made as of the day on which the EMIR Refit enters into force. The ESMA statement also indicates that the EMIR Refit could be published in the Official Journal as early as May 2019, meaning that its entry into force and the consequential obligation to perform the calculation could be as early as the end of May 2019.

The immediate practical consequence of this is that any FC or NFC that intends to benefit from the clearing exemption should take steps now to ensure that it will be able to determine its aggregate month-end average position for the 12 month period ending on the date on which the EMIR Refit enters into force. By way of example, if the EMIR Refit does indeed enter into force at the end of May, then that 12 month observation period would be May 2018 to April 2019.

In addition, all FCs and NFCs, irrespective of whether they expect to be above or below the clearing threshold(s), should be prepared to send a notification to ESMA and the relevant national competent authority, stating whether it is above or below the relevant clearing threshold(s) or stating that it has chosen not to perform the calculation.