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European Market Infrastructure Regulation

Regulation Knowledge & Training

An Overview of the European Market Infrastructure Regulation (EMIR)

Implemented in August 2012, the European Market Infrastructure Regulation (EMIR) was created to stabilize over-the-counter (OTC) markets within EU member states. European Market Infrastructure Regulation

Why was EMIR introduced?

OTC markets facilitate the decentralized trade of stocks, bonds, derivatives, and debt securities directly between dealers, rather than via a centralized stock exchange. Companies that participate in OTC transactions are generally very small and dealers act as their own market-makers, quoting and negotiating prices with each other over the internet or phone, rather than on a physical trading floor. 

The nature of OTC transactions means that they tend to be less transparent than traditional stock exchanges and often subject to less regulatory scrutiny. Following a commitment by G20 member-states in 2009 to regulate OTC derivatives, European Market Infrastructure Regulations were introduced to address those vulnerabilities and ensure financial criminals are less able to exploit OTC markets to launder money or fund terrorist activities.

What are European Market Infrastructure Regulation compliance requirements?

After EMIR was enacted, OTC transactions across the EU became subject to new compliance requirements. Under these rules:

  • All OTC derivatives are subject to reporting requirements. 
  • Certain types of OTC derivatives must be processed through a Central Clearing Party (CCP). 
  • OTC derivatives that do not go through a CCP must be subject to risk mitigation.
  • All entities that are party to derivative contracts must report every trade to the relevant trade repository
  • CCPs must comply with certain business conduct requirements in order to ensure that transactions are handled correctly and that transaction data is publicly available. 

The risk mitigation techniques that European Market Infrastructure Regulation requires are designed to ensure that participants in OTC markets are able to trade safely and securely. The risk mitigation requirements include rules pertaining to dispute resolution, the timely confirmation of OTC transactions, and the compression and reconciliation of OTC portfolios. EMIR reporting requirements are enforced stringently: compliance fines vary by EU member state but can reach as high as €5 million.

Who must comply with EMIR?

Several types of financial entities are required to comply with EMIR:

  • All financially related counterparties and non-financially related counterparties that are above the clearing threshold are required to implement the relevant risk mitigation techniques and abide by clearing and reporting obligations. 
  • Non-financially related counterparties that are below the clearing threshold must also complete certain mandated risk mitigation techniques, such as regulating disputes, confirming OTC transactions in a timely manner, and compressing and reconciling OTC portfolios. Non-financially related counterparties must comply with certain reporting obligations.
  • Additionally, any firms dealing with OTC derivatives must comply with risk mitigation, reporting and clearing requirements. CCPs and trade repositories have their own European Market Infrastructure Regulation compliance requirements.

Who is exempt from European Marketing Infrastructure Regulation compliance?

Although most financial entities must abide by EMIR, entities may be exempt in certain scenarios. Intragroup transactions and pension scheme arrangements, for example, may be exempt from some clearing obligations, and from obligations regarding the exchange of collateral during OTC transactions. The circumstances for European Marketing Infrastructure Regulation exemption vary depending on the specific details of the OTC transaction: accordingly, it is advisable to consult a financial advisor to ensure that you understand your EMIR compliance obligations.

Originally published 01 July 2014, updated 04 May 2022

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