EU EMIR: Clearing RTS amendments in relation to SOFR and TONA

The European Commission has adopted a Delegated Regulation ((EU) 2024/363) to amend Delegated Regulation (EU) 2015/2205 as regards the transition to the Tokyo Overnight Average Rate (TONA) and Secured Overnight Financing Rate (SOFR) benchmarks referenced in certain OTC derivative contracts. The amending delegated regulation was published in the Official Journal on 22 January 2024 and comes into force on the twentieth day following such publication.

What is changing?

The Annex to Delegated Regulation (EU) 2015/2205, which sets out certain interest rate OTC derivatives classes subject to the clearing obligation, is being amended as follows:

1) SOFR, new row E.4.1 of Table 4 - overnight index swaps (with maturities 7D to 50Y) with SOFR as the reference index and USD as the settlement currency  are being added (and existing row D.4.3 which covers SOFR with maturities 7D to 3Y is being removed); and

2) TONA, new row E.4.2 of Table 4 - overnight index swaps (with maturities 7D to 30Y) with TONA as the reference index and JPY as the settlement currency are being added.

These changes are in line with the current position under UK EMIR in relation to SOFR and TONA overnight index swaps (the Bank of England's public register for the UK EMIR clearing obligation is available here).

When will the changes take effect?

The changes will take effect on 11 February 2024. The recitals to the amending delegated regulation specifically state that counterparties have had time to prepare for the benchmark transition, including the cessation of JPY LIBOR that took place at the end of 2021 or the planned cessation of most settings of USD LIBOR, including with respect to their clearing arrangements. Therefore no additional phase-in will be provided in relation to these changes.

Counterparties that are subject to the clearing obligation under EU EMIR should ensure that they are ready and prepared for the relevant SOFR and TONA transactions to be subject to mandatory clearing with effect from 11 February 2024.