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EMIR: clearing obligation for OTC derivatives

The effective date for mandatory transaction clearing on interest rate swaps (IRS)* via a clearing house (CCP) differs depending on the type of counterparty. It is applicable since 21st June 2016 for financial counterparties in category 1 (clearing members). It will enter into force from 21st December 2016 for financial counterparties in category 2 (counterparties with OTC derivative portfolio in excess of €8 billion) and on 21st June 2017 for category 3 (counterparties with a portfolio below €8 billion). Finally, it will become effective for all non-financial counterparties on 21st December 2018. For categories 2 to 4, it represents a considerable challenge because many players in the OTC derivatives market do not trade listed derivatives, and therefore are not familiar with the clearing process. They need to review their trading and operational processes such as entering into an agreement with a clearing broker, systematic exchange of collateral, and management of margin calls. For those that do already trade in listed derivatives, the process may be familiar, but operational and legal impacts of EMIR will still be significant.

CACEIS’s OTC derivative clearing offer is a continuation of its clearing service for listed derivatives. To this end, CACEIS has joined the LCH Clearnet Swapclear clearing house, the leading CCP on the IRS market in Europe. CACEIS’s model offers both flexibility and security for its clients. The group does not provide an execution service for interest rate swaps, offering only a clearing service, and thus leaving clients free to execute transactions with the counterparties of their choice.

An additional benefit of engaging CACEIS is that as an asset servicer, whose main activity is geared towards services to institutional clients, the group has a limited risk profile. Today, CACEIS is a player that offers one of the highest levels of security in the industry. With its custody-depository background, CACEIS provides a segregated account structure. Each client has individual cash and securities accounts, and CACEIS never pools collateral it collects on an omnibus account.

As regards collateral management, CACEIS provides clients with a more flexible policy than the CCP, by offering a wider range of eligible securities to cover Initial Margin Requirements (IMR), comprising not only government bonds but also corporate bonds as well as equities.

CACEIS’s listed and OTC derivatives clearing offer is both consistent and comprehensive. Clients opting to use CACEIS for clearing both listed and OTC derivatives benefit from a single onboarding process, a single cash and securities account, a single contact point and integrated reporting for both activities.

Our teams are available to provide further information about our clearing services

*The requirement to clear CDS (Credit Default Swaps) will come into effect on 9th February 2017