EMIR 3.0 Will Come Into Force On 24 December 2024 – What Does This Mean For Users Of Derivatives? - Commodities/Derivatives/Stock Exchanges

On 4 December 2024, the amending regulation in respect of the European Market Infrastructure Regulation ("EMIR 3.0") was published in the EU's Official Journal. EMIR 3.0 will come into force on 24 December 2024, 20 days after its publication in the Official Journal.

Please refer to our earlier briefing on EMIR 3.0 and what it means for users of derivatives here.

This briefing is intended to be a reference for buy-side participants in derivatives markets, including asset managers and UK pension schemes. In the table below we set out the application dates of the main provisions that may apply to those counterparties. The changes brought in by EMIR 3.0 are, however, relevant to all counterparties that are established in the EU or trading with EU entities. Highlighted below are the provisions which we expect to be of most interest to buy-side participants.

While almost all of the EMIR 3.0 provisions will apply from 24 December 2024:

New calculation methodology and thresholds for determining whether counterparties are subject to the clearing obligation will apply from the entry into force of regulatory technical standards ("RTS") to be submitted by ESMA to the European Commission by 25 December 2025.
Firms subject to the "active account requirement" (the "AAR") have a 6-month grace period to comply with the new obligation (and the European Securities and Markets Authority ("ESMA") has until 25 June 2025 to submit draft RTS providing further detail in respect of the obligation).
ESMA is due to submit draft RTS by 25 December 2025 to implement various provisions listed in the table below (a non-exhaustive list of EMIR 3.0 provisions which may apply to buy-side market participants).

While certain provisions technically apply from 24 December 2024, it may not be possible for market participants to comply with the relevant obligations until ESMA develops the detailed rules in the relevant RTS.

ESMA has, so far, published a draft RTS in respect of the new AAR and maintained an open discourse surrounding many of the proposed changes under EMIR 3.0. Industry associations and market participants are pushing to ensure the new procedures under the RTS are appropriate, practicable and capable of legal enforcement in different jurisdictions.

1. Classification and scoping

Obligation	Description	RTS Required	Applicability
Clearing threshold calculations	EMIR 3.0 will introduce changes to clearing threshold calculation methodology for both financial counterparties ("FCs") and non-financial counterparties ("NFCs"). ESMA is required to set out the value of the corresponding clearing thresholds in RTS.	Yes – by 25 December 2025	The new clearing threshold calculations will not apply until entry into force of RTS which ESMA is required to submit to the European Commission by 25 December 2025, specifying: In respect of NFCs: the criteria for establishing which OTC derivatives transactions are "objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity"; the values of the clearing thresholds for uncleared positions, the systemic relevance of the sum of net positions and exposures per counterparty and per class of OTC derivatives; and the mechanisms triggering a review of the values of the clearing thresholds, following significant price fluctuations in the underlying class of OTC derivatives or a significant increase of financial stability risks. In respect of FCs, the value of the clearing thresholds applicable to aggregate positions.
Definition of "intra-group transactions" for the purposes of the intra-group clearing and margin exemptions	EMIR 3.0 will change the definition of "intra-group transactions" to remove the need for an equivalence decision for group derivatives transactions with third country entities, provided the third country is not on a high-risk list.	No	Will apply from 24 December 2024.

2. Reporting obligation

Obligation	Description	RTS Required	Applicability
Trade reporting requirements	EMIR 3.0 introduces a requirement that all entities subject to the reporting obligation have adequate systems in place to ensure the quality and accuracy of information submitted to trade repositories. Penalties will apply to counterparties whose reports repeatedly include "systemic manifest errors".	Yes – by 25 December 2025	While applicable from 24 December 2024, ESMA is required to submit draft RTS to the European Commission by 25 December 2025, specifying: the required procedures and arrangements to ensure the quality of reported data; and what constitutes "systematic manifest errors" for the purposes of applying penalties.
New reporting requirement for parents of NFC+s which benefit from the intra-group reporting exemption	The EU parent undertaking of an NFC+ which is part of a group which benefits from the intra-group exemption from reporting will be required to report to the competent authority the NFC+'s net aggregate positions by class of derivatives on a weekly basis.	No	Will apply from 24 December 2024. No specific details are given as to the format of the report of the NFC+'s net aggregate positions by class of derivatives. Further details may be set out in the RTS mentioned in the row above, but there is no specific requirement that ESMA provide such details in those RTS. Groups with NFC+ counterparties who rely on this exemption may need to liaise with their competent authority as to the format required in the interim.
Ability of NFC-s to rely on non-EU FCs to report on their behalf	Under EMIR, NFC-s are able to rely on non-EU FCs to report a single data set on their behalf, provided that certain conditions are met (including a condition that the non-EU FC's jurisdiction is declared equivalent for reporting purposes). EMIR 3.0 removes the condition that the non-EU FC's jurisdiction must be declared equivalent (although other requirements remain to benefit from this carve-out).	No	Will apply from 24 December 2024.

3. Clearing obligation

Obligation	Description	RTS Required	Applicability
Active account and representativeness requirement	EMIR 3.0 introduces a new AAR that EU entities which exceed the clearing threshold in respect of certain substantially systemically important ("SSI") derivatives transactions must maintain an active clearing account with at least one EU central counterparty clearing house ("CCP"). If counterparties exceed EUR 6bn of clearing volume in SSI derivatives transactions over a set reference period, they must clear a representative portion of the derivatives transactions at an EU authorised CCP. This portion will be set as a number of derivatives transactions per annum in subcategories of classes of SSI derivatives to be prescribed by ESMA.	Yes – by 25 June 2025	Will apply from 24 December 2024, although firms have six months from the date they come within scope of the AAR to comply. ESMA is required to submit draft RTS to the European Commission by 25 June 2025, specifying: the active account conditions and stress testing thereof and the details of the reporting in accordance with Article 7b (see "Monitoring and reporting on compliance with the AAR" below). ESMA has confirmed that it will take into account the size of the portfolios of different counterparties according to the third subparagraph of this paragraph, so that counterparties with more trades in their portfolios will be subject to more stringent operational conditions and reporting requirements than counterparties with fewer trades; a maximum of three different classes of derivatives, a maximum of four different maturity ranges, and a maximum of three different trade size ranges, to ensure the representativeness of the derivatives transactions to be cleared through the active accounts; the number, not to exceed five, of most relevant subcategories per class of derivatives transactions to be represented in the active account. The most relevant subcategories are those containing the highest number of trades during the reference period; and the duration of the reference period, which will be at least six months for counterparties with a notional clearing volume outstanding of less than €100 billion in the SSI derivatives transactions and at least one month for counterparties with a notional clearing volume outstanding of more than €100 billion in the SSI derivatives transactions. On 20 November 2024 ESMA published a consultation paper on the conditions of the AAR, which includes a draft RTS to this effect. Note that these draft RTS propose that until the new clearing thresholds apply (see "Clearing threshold calculations" above), counterparties should use the existing clearing thresholds and calculations to determine whether the AAR will apply.
Clearing activity reporting	EMIR 3.0 introduces a requirement for parties that clear derivatives transactions through an EU CCP or recognised third-country CCP to report data on their clearing activities to their competent authority.	Yes – by 25 December 2025	While applicable from 24 December 2024, ESMA is required to submit draft RTS to the European Commission by 25 December 2025 to specify the content and detail of the information to be reported. ESMA has confirmed that it will take into account the existing reporting channels and the information already available to ESMA under the existing reporting framework. In the draft RTS in respect of the new AAR, ESMA is proposing to establish set dates for reporting information to competent authorities and that transitional measures will allow the first reporting date to be not earlier than six months from the date of entry into force of the RTS. Further, ESMA proposes that it will supplement the new reporting requirements with Level 3 Guidance to ensure consistent application.
Eligible CCP collateral	EMIR 3.0 widens the range of highly liquid assets that EU CCPs are permitted to accept as non-cash collateral from counterparties.	Yes – by 25 December 2025	While applicable from 24 December 2024, ESMA is required to submit draft RTS to the European Commission by 25 December 2025, specifying: the type of collateral that could be considered highly liquid, such as cash, gold, government and high-quality corporate bonds and covered bonds; required haircuts; and the conditions under which public guarantees, public bank guarantees and commercial bank guarantees may be accepted as collateral, including appropriate concentration limits, credit quality requirements and stringent wrong-way risk requirements for such bank guarantees.
Increased transparency for client clearing	EMIR 3.0 introduces a new requirement for EU clearing members to disclose additional information to buy-side counterparties, including how cleared margin models work and simulations showing the implications for their clients during periods of market stress, as well as the losses they may suffer as a result of default management procedures.	Yes – by 25 December 2025	While applicable from 24 December 2024, ESMA is required to submit relevant draft RTS to the European Commission by 25 December 2025. The European Commission is of the opinion that clearing members should be able to comply with the obligation prior to the entry into force of the RTS based on the information made available from CCPs.
Monitoring and reporting on compliance with the AAR	EMIR 3.0 introduces a new requirement upon entities subject to the AAR to calculate activities and risk exposures in the categories of SSI derivatives transactions and report every six months to their competent authority that: the account is functional; the legal documentation, IT connectivity and internal processes associated to the active account are in place; all new trades in the categories of SSI derivatives transactions can be cleared in the account at all times; and the representativeness requirement is met.	Yes – by 25 June 2025	Will apply from 24 December 2024, although firms have six months from the date they come within scope of the AAR to comply. ESMA is required to submit draft RTS to the European Commission by 25 June 2025, specifying the details of these reports. On 20 November 2024 ESMA published a consultation paper on the conditions of the AAR, which includes a draft RTS to this effect. EMIR 3.0 allows counterparties to use the information reported to trade repositories under Article 9 for the purpose of the obligation to monitor risks and exposures in the relevant SSI derivatives transactions and reporting to the competent authority.
Monitoring of risk exposures in SSI derivatives transactions and resources and systems in place to clear in active accounts	EMIR 3.0 introduces a new requirement upon entities which hold accounts at certain systemically important third country CCPs ("Tier 2 CCPs"), in addition to their active accounts, to report details regarding the resources and systems they have in place to ensure that the account is operationally able to clear large volumes at short notice flowing from the Tier 2 CCP. This information will need to be reported to the entity's competent authority every six months.	Yes – by 25 June 2025	Will apply from 24 December 2024, although firms have six months from the date they come within scope of the AAR to comply. ESMA is required to submit draft RTS to the European Commission by 25 June 2025, specifying the details of these reports. On 20 November 2024 ESMA published a consultation paper on the conditions of the AAR, which includes a draft RTS to this effect.
Post-trade risk reduction services clearing exemption	EMIR 3.0 introduces an exemption from the clearing obligation in respect of derivatives transactions meeting the criteria for post-trade risk-reduction ("PTRR").	Yes – by 25 December 2025	While applicable from 24 December 2024, ESMA is required to submit draft RTS to the European Commission by 25 December 2025, specifying: details of the types of derivatives transactions that will meet the requisite elements and conditions or characteristics of exempted PTRR exercises; what constitutes market risk neutrality in a PTRR exercise; the required risk reduction in submitted portfolios; the possible inclusion of mixed portfolios containing both cleared and uncleared derivatives transactions in the same exercise and the conditions under which that would be allowed; requirements regarding the management of the PTRR exercise; requirements for different types of PTRR services; the process for monitoring the application of the exemption granted; and the criteria to apply when assessing whether the clearing obligation is circumvented.
Third-country pension scheme arrangement clearing exemption	EMIR 3.0 introduces a new exemption from the clearing obligation for EU FCs transacting with third country pension schemes which benefit from a clearing exemption in their own jurisdiction.	No	Will apply from 24 December 2024.

4. Risk mitigation obligation

Obligation	Description	RTS Required	Applicability
Implementation period for valuation requirement for new NFC+s	EMIR 3.0 introduces a four-month grace period for NFCs which exceed the clearing threshold(s) in order that they can put in place arrangements to comply with the daily mark-to-market valuation requirement under EMIR.	No	Will apply from 24 December 2024. Note: The 4-month exemption period begins from the date the NFC submits the notification that it has exceeded the clearing threshold(s).
Implementation period for margin requirement for new NFC+s	EMIR 3.0 introduces a four-month grace period for NFCs which exceed the clearing threshold(s) in order that they can put in place arrangements to comply with margin requirements under EMIR.	No	Will apply from 24 December 2024. Note: The 4-month exemption period begins from the date the NFC submits the notification that it has exceeded the clearing threshold(s).
Permanent margin exemption for uncleared stock and equity index options	EMIR 3.0 makes the temporary margin exemption for uncleared stock and equity index options permanent (to be reviewed by ESMA every three years).	No	Will apply from 24 December 2024.
Initial margin model validation	EMIR 3.0 introduces a requirement that industry-standard initial margin models must receive validation by the European Banking Authority (the "EBA") and authorisation from a competent authority.	Yes – by 25 December 2025	Will apply from 24 December 2024, although on 17 December 2024 the EBA published a no action letter stating that competent authorities should not prioritise any supervisory or enforcement action in relation to the processing of applications for initial margin model authorisation received as a result of the entry into force of EMIR 3.0. This will remain in place until the EBA sets up its central validation function, the RTS on initial margin model validation is in place, and the associated guidelines on application and authorisation process are published.

5. Next steps and conclusion

While some of the detailed requirements of EMIR 3.0 will not become clear until ESMA publishes the various regulatory technical standards, counterparties should now review their existing compliance arrangements and consider where EMIR 3.0 might require these to be changed or augmented. It will also be sensible for counterparties to consider whether they have the operational capacity to comply with new requirements, and to engage with their counterparties early with respect to managing the transition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

EMIR 3.0 Will Come Into Force On 24 December 2024 – What Does This Mean For Users Of Derivatives?

Contributor