On March 1, 2016, the European Commission announced that it had adopted a Delegated Regulation on the clearing obligation for credit derivatives. Under the European Market Infrastructure Regulation, the European Securities and Market Authority is required to develop draft Regulatory Technical Standards setting out the categories of 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. ESMA provided its final draft RTS for the mandatory clearing of CDS to the European Commission in February 2015. The Delegated Regulation, which does not substantively change the ESMA RTS, provides for untranched iTraxx Index CDS (Main, EUR,5Y) and untranched iTraxx Index CDS (Crossover, EUR,5Y) derivatives to be subject to the clearing obligation. The obligation will be phased in according to counterparty type to allow market participants time to determine whether the obligation applies to them and set up procedures to ensure compliance, in a similar way as was done for interest rate swaps. Counterparty classifications are established for these purposes, which are also the same as those set for the clearing obligation for interest rate swaps. The exact dates for when the clearing obligation will come into effect will be determined by the date of publication of the Delegated Regulation in the Official Journal of the European Union.
The Delegated Regulation is available at: https://ec.europa.eu/transparency/regdoc/rep/3/2016/EN/3-2016-1165-EN-F1-1.PDF and the annex to the Delegated Regulation is available at: https://ec.europa.eu/transparency/regdoc/rep/3/2016/EN/3-2016-1165-EN-F1-1-ANNEX-1.PDF.
You may like to view our client note on interest rate swap clearing obligation for further information: http://www.shearman.com/~/media/Files/NewsInsights/Publications/2015/12/U-Clearing-Obligation-for-Interest-Rate-SwapsSet-for-June-2016-FIAFR-12.pdf.
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