The European Markets Infrastructure Regulation (EMIR) is an EU regulation implemented by the European Securities and Markets Authority (ESMA) that came into force on 16 August 2012.
Its primary aim is to supervise all over-the-counter (OTC) derivatives through measures to improve transparency and reduce risk in the financial system.
EMIR established three key provisions:
Derivatives should be cleared through a central counterparty. Foreign exchange derivatives include forward contracts, options, and swaps. Clearing must be approved by a competent authority authorized by ESMA.
2. Risk mitigation for non-cleared derivatives
This includes the exchange of collateral and ensuring mitigation procedures are in place. Risk-mitigation procedures are designed to measure, monitor, and mitigate the operational and credit risk arising from such contracts.
3. Reporting to Trade Repositories (TR)
All derivative contracts (without exception) must be reported to a Trade Repository on a T+1 business day (transaction date + 1 business day) basis. These reports are to include a considerable amount of information, including details such as derivative class and contract terms.