EMIR

EMIR – European Market Infrastructure Regulation

The European Market Infrastructure Regulation (EMIR) was adopted during 2012 to increase the transparency and reduce counterparty credit risk and operational risk between market participants in the derivatives markets. EMIR applies to all legal entities using derivatives instruments, both OTC and exchange traded. 

EMIR Refit – as of 29 April 2024 (UK on 30 September 2024)

The new EMIR Refit reporting rules go live in the EU on 29 April 2024 and in the UK on 30 September 2024 and are designed to further enhance the harmonisation and standardisation of reporting:

• New and modified data fields that were not required previously in the EMIR reporting
• Global standards harmonisation – EMIR aims to align reporting fields to global standards
• Notification of significant or material reporting issues to regulators
• Increased requirements on exchange of Unique Transaction Identifiers (UTIs)

Nordea´s EMIR Status

Counterparty categorisation

EMIR requires the categorisation of counterparties into one of three different categories*; Financial Counterparty (FC), Non-Financial Counterparty (NFC) and Exempted Entity. These categories can then be divided up in sub-groups:

*Note CCPs are another distinct category, and subject to specific CCP rules under EMIR.

The counterparty categorisation affects the application of all three main areas of EMIR:

• Clearing obligation for certain standardised OTC derivatives
• Transaction reporting to a trade repository 
• Risk-mitigation techniques

Clearing Obligation

The + or – suffix after the FC/NFC classification refers to whether an entity’s derivatives exposures are above or below the EMIR clearing threshold. Entities above the clearing threshold (FC+/NFC+) are subject to the clearing obligation, and if under the clearing threshold (FC-/NFC-) the clearing obligation doesn´t apply.

Each counterparty is responsible for determining their status relative to the clearing threshold, based on calculations of their aggregate month-end average position in OTC derivatives over the past 12 months. FCs and NFCs need to inform ESMA and their relevant national competent authority if they exceed the clearing threshold.

If the clearing obligation applies to an entity, then trades in certain classes of OTC derivative contracts must be cleared through a central clearing counterparty (CCP). The OTC derivative asset classes subject to the clearing obligation can be found on ESMA’s public register for the clearing obligation: https://www.esma.europa.eu/sites/default/files/library/public_register_for_the_clearing_obligation_under_emir.pdf 

The clearing thresholds for the different asset classes and additional information on how the calculations should be performed can be found on ESMA’s website: https://www.esma.europa.eu/post-trading/clearing-thresholds

**Please note, where an FC or an NFC choose to not calculate its positions against the clearing thresholds, the counterparty will be subject to the clearing obligation for all OTC derivative contracts pertaining to any class of OTC derivatives for which the clearing obligation is applicable.

Transaction reporting

Under EMIR, transactions in derivatives must be reported to a registered trade repository - an entity that centrally collects and maintains the records of financial transactions to ensure transparency for market participants and regulators. 

As a general rule the reporting obligation under EMIR is two-sided, i.e. both parties are required to report the same trade, and the two reports should match.

Mandatory delegated reporting (NFC-)

An exception to the two-sided reporting is where Financial Counterparties (FCs), such as Nordea, are solely responsible and legally liable for reporting OTC derivative contracts entered into with Non-Financial Counterparties that are not subject to the clearing threshold (NFC-).This automatic delegation is known as the “mandatory reporting”. 

NFC- clients can choose to opt-out and report themselves, becoming responsible and legally liable for the reporting.

Voluntary delegated reporting (NFC+ and FC)

Non-Financial Counterparties subject to the clearing obligation (NFC+) and Financial Counterparties (FC+ or FC-) are responsible and legally liable to report their OTC derivatives, but the reporting can be delegated to Nordea (voluntary delegated reporting) if there is a reporting agreement in place.

In line with industry best practices, Nordea will monitor EMIR reporting metrics and notify delegated reporting counterparties if errors breach the notification limits as specified in ESMA’s guidelines for reporting.

For new customers the reporting to a trade repository needs to be agreed before the first trade is executed.

Legal Entity Identifier (LEI) code

As part of the transaction reporting, a unique reference number to identify each party to the transaction needs to be included. The unique identifier is called a Legal Entity Identifier (LEI). 

Hence it is required for all legal entities (including individuals trading as entrepreneurs/sole traders) using derivative instruments to obtain a LEI code and maintain it throughout the lifetime of the derivative contract. Without a LEI code our clients will not be able to trade derivatives*.

It is the responsibility of the client to register for and obtain a LEI code. The registration is made with a Local Operating Unit (LOU) authorised by the Global Legal Entity Identifier Foundation (GLEIF).

Clients can find a LOU through the GLEIF webpage, or through https://www.nordea.com/en/our-services/lei

*Unless the client is wholly exempted from EMIR, or only trading products not in scope of EMIR (and not in scope of MiFID or other regulatory reporting to supervisory authorities which also requires a LEI code).

Please contact TradeRepositoryTeam [at] nordea.com (TradeRepositoryTeam[at]nordea[dot]com) if you have any questions about trade repository reporting or Nordea’s reporting service.

Risk-mitigation techniques

For non-cleared OTC derivative contracts, risk mitigation techniques should be established to manage the inherent counterparty credit risk and operational risks: