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«Implications of Regulation 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR) in selected CEE/SEE countries ...»

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THE RELEVANCE OF EMIR

FOR NON-FINANCIAL ACTORS

doing OTC business in non-regulated markets

with volumes of more than EUR 1-3 billion

gross notional value

Implications of Regulation 648/2012 on OTC derivatives, central

counterparties and trade repositories (EMIR) in selected CEE/SEE countries

Implications of Regulation 648/2012 on OTC derivatives,

central counterparties and trade repositories (EMIR) in selected

CEE/SEE countries

THE RELEVANCE OF EMIR FOR NON-FINANCIAL ACTORS

doing OTC business in non-regulated markets with volumes of more than EUR 1-3 billion gross notional value This 2015 Wolf Theiss brochure, “THE RELEVANCE OF EMIR FOR NON-FINANCIAL ACTORS doing OTC business in non-regulated markets with volumes of more than EUR 1-3 billion gross notional value”, is intended as a practical guide to the general principles and features of the basic legislation and procedures with respect to the Regulation 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR) in the countries included in this publication.

While every effort has been made to ensure that this publication was accurate when finalised, it should be used only as a general reference guide and should not be relied upon as definitive for planning or making legal decisions. In these rapidly changing legal markets, the laws and regulations are frequently revised, either by amended legislation or by administrative interpretation.

Status of information: Current as of 15th August 2015

Conception, design, and editing:

WOLF THEISS Rechtsanwälte GmbH & Co KG, Attorneys-at-Law Schubertring 6, 1010 Vienna, Austria www.wolftheiss.com © 2015 WOLF THEISS Rechtsanwälte GmbH & Co KG. All Rights Reserved.

CONTENTS

EUROPEAN LEGISLATIVE BACKGROUND 4

AUSTRIA 11 BULGARIA 14 CROATIA 17 CZECH REPUBLIC 20 HUNGARY 23 POLAND 26 ROMANIA 29 SLOVAKIA 32 SLOVENIA 35 UKRAINE 38

LIST OF ABBREVIATIONS 40

EUROPEAN LEGISLATIVE

BACKGROUND

European legislation The European regulation on OTC derivatives, central counterparties and trade repositories (“EMIR”) is directly applicable under national law in all EU member states and entered into force on 16 August 2012. Commission Delegated Regulations 148/2013, 149/2013, 150/2013, 151/2013, 152/2013 and 153/2013 (“Delegated Regulations”) supplementing EMIR entered into force on 15 March 2013. Commission Implementing Regulations 1247/2012, 1248/2012 and 1249/2012 (“Implementing Regulations”) implementing EMIR entered into force on 10 January 2013. Implementing Regulations and Delegated Regulations are also directly applicable under national law in all EU member states.

Implementation provisions Because of the direct applicability of the regulation in each EU member state (currently excluding the three EEA partners as the EEA Joint Committee has not adopted EMIR), no implementation provisions were necessary for the implementation of the regulation itself.

However, provisions in the regulations stating for example that member states shall lay down the rules on penalties applicable to violations of the rules under EMIR and will take all measures necessary to ensure that they are implemented, including at least administrative fines, open the field for different provisions in EU member states.

Focus of EMIR EMIR, the Implementing Regulations and the Delegated Regulations are primarily focused on implementing (i) centralized clearing obligations for certain classes of OTC derivatives, (ii) the obligation to apply risk mitigation techniques for non-centrally cleared OTC derivatives, (iii) the general obligation to report OTC derivatives to trade repositories, (iv) the application of a wide range of requirements for central counterparties (“CCPs”), and (v) the application of a wide range of requirements for trade repositories (“TReps”), including the obligation to make certain data available to the public and relevant authorities.

Basic EMIR principles Basically, EMIR states that all OTC derivatives have to be cleared with a CCP. Certain exceptions where such a clearing obligation is not applicable are provided (Article 4 in connection with Article 10 EMIR). EMIR brought a fundamental change concerning the target group of regulatory OTC clearing obligations: in addition to financial counterparties, non-financial counterparties having a seat in the European Union, and any other entity established in a third country outside of the EU that would be subject to the clearing obligation if it were established in the EU, fall under EMIR (Article 4 (1) (iv - v EMIR)). For example, if two entities (one established in Switzerland and one established in Ukraine) close an OTC derivative contract that would be subject to the clearing obligation if the Swiss company or the Ukrainian company were established in the EU, and it has a direct, substantial and foreseeable effect within the Union, such contract would have to be cleared with a CCP complying with EMIR. As it can be seen from this example, the scope of application for EMIR also for non-EU companies crosses EU borders. Therefore, the legal set up and internal structuring for OTC deals are a critical concern for EU and non-EU companies.





Non-financial counterparties falling under EMIR

• Any company established in the EU which is not an investment firm, credit institution, insurance company, reinsurance undertaking, UCIT or UCIT manager, pension scheme system, AIFM managed fund (Article 2 EMIR), whose positions in OTC derivative contracts are not used for hedging purposes, which exceeds any of the EMIR clearing

thresholds of (Chapter VII EU/149/2013):

(i) EUR 1 billion in gross notional value for OTC credit derivative contracts;

(ii) EUR 1 billion in gross notional value for OTC equity derivative contracts;

(iii) EUR 3 billion in gross notional value for OTC interest rate derivative contracts;

(iv) EUR 3 billion in gross notional value for OTC foreign exchange derivative contracts;

(v) EUR 3 billion in gross notional value for OTC commodity derivative contracts and other OTC derivative contracts not provided for under points (i) to (v).

and the execution of such derivatives does not take place on a regulated EU market (MiFID Definition) or a non-EU equivalent third-country market (which list is not yet published by ESMA).

• Any company not established in the EU which is not an investment firm, credit institution, insurance company, reinsurance undertaking, UCIT or UCIT manager, pension

scheme system, AIFM managed fund (Article 4 EMIR), those positions against:

(i) an EU financial counterparty or an EU non-financial counterparty; or (ii) a non-EU financial counterparty or a non-EU non-financial counterparty with one or more positions that have a direct, substantial and foreseeable effect within the EU or where the applicability of EMIR to the position(s) is necessary or appropriate to prevent the evasion of any provisions of EMIR in the EU, in OTC derivative contracts not used for hedging purposes and exceeding any of the

EMIR clearing thresholds of (Chapter VII EU/149/2013):

(i) EUR 1 billion in gross notional value for OTC credit derivative contracts;

(ii) EUR 1 billion in gross notional value for OTC equity derivative contracts;

(iii) EUR 3 billion in gross notional value for OTC interest rate derivative contracts;

(iv) EUR 3 billion in gross notional value for OTC foreign exchange derivative contracts;

(v) EUR 3 billion in gross notional value for OTC commodity derivative contracts and other OTC derivative contracts not provided for under points (i) to (iv), and the execution of such derivatives does not take place on a regulated EU market (MiFID Definition) or a non-EU equivalent third-country market (a list is not yet published by ESMA).

Underlyings falling under EMIR with respect to non-financial sector underlyings Underlyings are defined indirectly to include underlyings which can be used for MiFID

Annex I Section C 5 - 10:

(i) Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties for reasons other than a default or other termination event;

(ii) Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on an MTF;

(iii) Options, futures, swaps, forwards and any other derivative contracts relating to commodities that can be physically settled, not otherwise mentioned in (ii) and not being for commercial purposes, which have the characteristics of other derivative financial instruments, with regard to whether they are cleared and settled through recognised clearing houses or are subject to regular margin calls;

(iv) Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties for reasons other than a default or other termination event, as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned so far, which have the characteristics of other derivative financial instruments, with regard to whether they are traded on a MTF, are cleared and settled through recognised clearing houses, or are subject to regular margin calls.

Unresolved questions with respect to non-financial sector underlying Due to the specifics of the non-financial sector and the variety of trades which may occur there following its implementation, EMIR opened certain questions on the categorisation of the non-financial contracts entered into by the non-financial market participants in the course of their regular business. These include, for instance, the questions about the differentiation between energy spot and energy derivatives, the application of the criteria to physically settled contracts on emission allowances, and the differentiation between contracts entered into for hedging and contracts for commercial purposes. Yet, it is not a pure EMIR issue, as it uses the MiFID definition. Therefore, it is expected that the implementation of MiFID 2 and execution of MiFIR will trigger fundamental changes in the commodity markets, including by amending the definition of derivative financial instruments.

Timeline for complying with EMIR obligations The general EMIR reporting obligation has been in effect since 12 February 2014, following which all non-financial counterparties were required to report each new position in OTC derivative contracts entered into for commercial purposes. Although the reporting and obtaining of the LEI number as a pre-requisite for this initially caused some confusion among the market players, the notifications duties are much more clear for the non-financial counterparties now, which was primarily driven by the request of the financial counterparties toward the non-financial ones to comply with EMIR. What is forthcoming now is the obligation for the mandatory clearing which is the second key aspect of EMIR. Unlike the reporting requirement, the mandatory clearing will affect only the big players and will be effective for those non-financial counterparties categorised as non-financial counterparties (which exceed certain threshold of derivatives trade) when they enter into a specific class of derivative with a financial counterparty, or another non-financial counterparty. On August 6, 2015 the European Commission has adopted its first delegated regulation / RTS with respect to clearing obligations, ruling that certain interest rate OTC derivatives classes are

subject to the clearing obligation. Depending under which category the financial counterparty / non-financial counterparty falls, the following phase-in periods apply:

–  –  –

In a simplified scheme: the first category includes both financial counterparties and non-financial counterparties which, on the date of entry into force of the delegated regulation, are clearing members of at least one of the relevant CCPs and for at least one of the classes of interest rate OTC derivatives subject to the clearing obligation; the second and third category comprises financial counterparties not included in the first category, grouped according to their levels of legal and operational capacity regarding OTC derivatives; and the fourth category includes non-financial counterparties not included in the other three categories. The clearing obligation for these interest rate OTC derivatives classes will enter into force subject to scrutiny by the European Parliament and Council of the EU.

The next delegated regulation, for which at this point in time no draft has been endorsed by the European Commissions, will concern clearing obligations for credit default swaps.

For equity and FX derivatives the timeline for the respective delegated regulations has not been published yet.

Administrative Fines for EMIR violations According to Article 12 EMIR the member states must implement administrative national fines and publication obligations regarding EMIR violations.

Competent Authority on European Level European Securities and Markets Authority (ESMA) Authorized CCPs established in the EU (Status 5.8.2015)

–  –  –

TITEL

AUSTRIA

Competent national authority responsible for the supervision and execution of EMIR In Austria, the authority responsible for the supervision of central counterparties, trade repositories, financial and non-financial counterparties and their activities is the Austrian Financial Market Authority (Finanzmarktaufsichtsbehörde – “FMA”).



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