On October 2, 2015, the European Securities and Markets Authority published its final report and final draft RTS on the clearing obligation for certain classes of credit derivatives. Under the European Market Infrastructure Regulation, ESMA is required to develop draft RTS setting out the OTC derivatives that should be subject to the clearing obligation, the date/s from which the obligation should apply and the minimum remaining maturity of OTC derivatives. The final draft RTS provide for the following two iTraxx Index CDS to be subject to the clearing obligation: (i) untranched iTraxx Index CDS (Main, EUR,5Y); and (ii) untranched iTraxx Index CDS (Crossover, EUR,5Y). ESMA has, to a large extent, adopted the same approach that it took for the RTS on the clearing obligation for IRS (which the European Commission adopted on August 6, 2015). The final draft RTS on the clearing obligation for CDS provide for the same categories of counterparties to be subject to the CDS clearing obligation as will be subject to the IRS clearing obligation. Similarly, the obligation for the different counterparties will be phased in according to counterparty type. This proposal follows ESMA's recent consultation on potentially amending the RTS for CCPs on the time horizons for the liquidation period for margin held by CCPs. That consultation aims to harmonize EU and US margin requirements in part, an issue which if resolved may mitigate some of the commercial and practical difficulties that have previously prevented finalizing of this clearing RTS. ESMA has submitted the final draft RTS on a clearing obligation for CDS to the European Commission for endorsement.
The final draft RTS on a clearing obligation for CDS is available at: http://www.esma.europa.eu/news/Press-release-ESMA-adds-Index-CDS-central-clearing-obligation?t=326&o=home.
The Shearman & Sterling Client Note "EU Clearing Obligation for Interest Rate Swaps Looms" is available at: http://www.shearman.com/~/media/Files/NewsInsights/Publications/2015/08/EU-Clearing-Obligation-for-Interest-Rate-Swaps-Looms-FIAFR-082415.pdf.
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.
