On Apr. 2, 2025, Eurex Clear issued newsflash with essential information on EMIR 3.0 active account regime (AAR) compliance and guidance on Eurex Clearing processes.
Including attached guide on steps to verify client static data and perform a pilot trade.
On Oct. 7, Eurex issued reminder to implement new EMIR 3.0 rules.
Eurex encouraged preparedness for when EMIR 3.0 is expected in force, by end 2024.
Follows EBA Jul. 2024 letter requesting technical advice on EMIR act, see #221590.
Overview
Eurex stated EMIR 3.0 active accounts are set to change European clearing landscape.
By end-2024, EMIR 3.0 is expected in force, starting 6-month period for firms active in certain euro or zloty-denominated interest rate derivatives to comply with rules.
A centerpiece of EMIR 3.0 is the so-called active account proposals, which mandate that EU market participants active in-scope products and are subject to EMIR clearing obligation must have an “active” account with a clearing house based in the EU.
Firms should prepare now for new rules to ensure compliance, and but seize chance to optimize margin and capital requirements across products under the Euro Yield Curve.
Account Activation
EMIR 3.0 is currently awaiting formal EU parliamentary approval of the Level 1 text, after which it will be published in the EU OJ, which is is expected to be in Q4 2024.
Final effectiveness to comply with active account requirements will likely be Q2 2025.
All EU market participants that meet clearing thresholds for OTC IRD in euro and zloty, and Euro STIR (Short-Term Interest Rate derivatives like Euribor and €STR Futures) are in scope of requirements; a challenge for firms preparing for EMIR 3.0 is that more specifications of Level 1 text are currently prepared by the EU market authority ESMA.
The regulation contains both quantitative and qualitative requirements governing the definition of an active account;.re qualitative, entities must set-up an account with an EU based CCP, as well as demonstrate they can do all new business and can move their entire book of in-scope products to an EU central clearing house (CCP) at short notice.
What steps an in-scope market participant needs to take to prove this to the satisfaction of their local prudential regulator is currently specified by EU ESMA.
Regarding quantitative requirements, EMIR 3.0 sets out three classes of derivatives contracts for the products in scope, with a maximum of five subcategories per class.
Level 1 text specifies that firms must clear at least 5 trades per subcategory over a specific period, from 1-6 months depending on size of firm’s derivatives exposures.
All details, further definitions will be addressed as ESMA finalizes technical standards in the Level 2 text, but basic requirements are clear, firms should delay getting started.
Eurex is seeing continuous onboarding from market participants, but there is still some way to go; expects to see a significant uptick in onboarding early in 2025.
There are around three to four hundred clients that still need to be onboarded.
Once there is clarity on the technical standards and exact timeline for implementation, Eurex will clarify the deadline for firms to start onboarding, so that they meet deadline.
Changing Landscape
EMIR 3.0 likely to majorly change landscape for clearing euro-denominated derivatives.
Historically, liquidity in euro-denominated swaps and futures clearing was split across Europe; OTC swaps, short-term interest rate listed (STIRs) derivatives cleared, traded in different pools in UK; longer-term interest rate derivatives traded, cleared at Eurex.
Pooling these products to a larger degree within an EU based market infrastructure brings two benefits: higher efficiencies for market participants and consequently lower costs for both the buy- and the sell-side; and at the same time, addressing concerns among policymakers and authorities strengthening financial market stability.
Higher efficiencies will be driven by possibility to multilateral net exposures across products and across full euro yield curve bringing down capital, margin, collateral costs.
EMIR 3.0 Active Account requirement should be seen as trigger to increase efficiencies.
Long-Term Impact
Some concerns raised over timeline for implementation, potential for long-term fragmentation of liquidity; former was addressed largely by fact the 6-month implementation timeline did not begin before the summer as some had feared.
Therefore, companies are now expected to have until Q2 2025 to comply.
In terms of fragmentation, Eurex says this should not concern the market.
Euro swaps market is even bigger than the dollar market; room for two liquidity pools.
Maintaining both allows for highest efficiency level for portfolios with multiple products, currencies; some elements of portfolio gain greater efficiency from margining across euro-denominated products; others have offsets against dollar or sterling swaps.
Dec. 2024 EMIR 3.0 Market Participant Readiness
On Dec. 11, 2024, Eurex recommended market participants get ready for EMIR 3.0.
For mandatory active accounts: EMIR 3.0 requires EU market participants to maintain active accounts for systemically relevant products with an EU CCP.
Key deadlines: EMIR 3.0 enters into force on Dec. 24, 2024, with the active account requirement effective by Jun. 24, 2025; compliance essentials: participants must meet operational, representativeness, and reporting requirements to ensure compliance.
EMIR 3.0 introduces significant changes EU market participants subject to the clearing obligation; new regulation mandates an active account with an EU CCP for OTC IRD in euro and zloty, and STIR in euro; market participants should prepare in advance.
EUREX Clear offers chance to set up account now, to ensure compliance.
EU market participants subject to clearing obligation, exceeding current IRD clearing threshold of €3bn for products in scope of active account regime must comply with:
Operational criteria: accounts must be fully operational, ensuring permanent functionality, IT connectivity, internal processes, and legal documentation.
Systems, resources in place to handle large volumes, new business on EU account.
Representativeness criterion: contracts cleared at a Tier 2 CCP must be represented on EU account; participants must clear min. 5 trades annually in each of 5 most relevant subcategories in each contract classes in certain reference period as defined by ESMA.
Reporting and monitoring: participants must report their activity as well as compliance with the above criteria at least every six months to their competent authority.
Compliance will also be stress-tested regularly, with penalties for non-compliance.
Dec. 11, 2024 EMIR 3.0 Act Now
On Dec. 11, 2024, EUREX Clear recommended market participants get ready for EMIR 3.0; for mandatory active accounts: EMIR 3.0 requires EU market participants to maintain active accounts for systemically relevant products with an EU CCP.
EMIR 3.0 introduces significant changes EU market participants subject to the clearing obligation; new regulation mandates an active account with an EU CCP for OTC IRD in euro and zloty, and STIR in euro; market participants should prepare in advance.
EUREX Clear offers the opportunity to set up an account now, to ensure compliance.
Document dated Dec. 11, 2024, received from EUREX Clear Dec. 17, summarized Dec. 19.
Dec. 19, 2024 Onboarding for AAR Compliance
On Dec. 19, 2024, EUREX Clear issued circular on onboarding of market participants to comply with active account regime (AAR), once EMIR 3.0 in force on Dec. 24, 2024.
6-months transition period for AAR until Jun. 24, 2025, during which ESMA is specifying technical details for implementation; ESMA's draft regulatory technical standards (RTS) were launched for consultation on Nov. 20, 2024 (see #234093).
Independent of the availability of the final RTS, however, industry already must ensure compliance with AAR from Jun. 24, 2025, i.e. by end of 6-months transition period after entry into force of EMIR 3.0; AAR foresees obligation to maintain an active account for systemically relevant products with an EU CCP, such as EUREX Clear.
Such relevant product defined in EMIR 3.0 are: OTC IRD in euro and Polish zloty as well as Short Term Interest Rate (STIR) Derivatives in euro; market participants in scope of EMIR 3.0 including the AAR are obliged to ensure readiness in time.
Involves starting onboarding as early as possible and coordinating with EUREX Clear.
Clearing members offering client clearing for euro and Polish zloty OTC IRD and/or euro ETD STIR products are asked, until Jan. 15, 2025, to contact their clearing key account manager and assign an onboarding coordinator for EUREX Clear.
Until mid-Feb. 2025, to determine scope and set-up of onboardings, with their clearing key account manager, with aim of concluding all client onboardings by end May 2025.
Apr. 2025 Readiness Newsflash
On Apr. 2, 2025, Eurex Clear issued newsflash with essential information on EMIR 3.0 active account regime (AAR) compliance and guidance on Eurex Clearing processes.
Including attached guide on steps to verify client static data and perform a pilot trade.
