Despite deadline extension, most hedging firms and buy side participants are not ready.
Europe’s new derivatives regulations kick in on February 12, but few companies and buy-side firms are ready to comply. Despite several delays to the European Market Infrastructure Regulation (EMIR) rules, derivatives market participants are not ready to comply.
The February 12 deadline requires all market participants to report all transactions for OTC derivatives. Bob Pickel, the head of the International Swaps and Derivatives Association, recently said that most OTC market participants would need to rely on “regulatory forbearance” – that is, hoping regulators don’t do their jobs.
The main issues involved in the EMIR rules are as follows, according to the EMIR web site:
EMIR requires entities that enter into any form of derivative contract, including interest rate, foreign exchange, equity, credit and commodity derivatives, to:
- report every derivative contract that they enter into to a trade repository;
- implement new risk management standards, including operational processes and margining, for all bilateral over-the-counter (OTC) derivatives i.e. trades that are not cleared by a CCP; and
- clear, via a CCP, those OTC derivatives subject to a mandatory clearing obligation.
Corporates, in particular, have waited until banks offer faster reporting solutions, but the banks have not met their own deadlines. This means a lot of corporates may miss the EMIR deadline. However, depending on the regulators involved, it may not be a problem, since some regulators have already shown indications that they will give corporates some leeway.