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Case Id: 093defc7-4a06-4dec-ac5c-140067488febDate: 13/08/2015 15:41:58

Public consultation on Regulation (EU)no 648/2012 on OTC derivatives, centralcounterparties and trade repositories

Fields marked with * are mandatory.

Important comment: this document is a working document of the FinancialStability, Financial Services and Capital Markets Union Directorate General of the

European Commission for discussion and consultation purposes. It does notpurport to represent or pre-judge any formal proposal of the Commission.

Introduction

The RegulationOn 4 July 2012 the Council and the European Parliament adopted Regulation (EU) No

.648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR)

EMIR responded to the that: "All standardisedcommitment by G-20 leaders in September 2009OTC derivatives contracts should be traded on exchanges or electronic trading platforms,where appropriate, and cleared through central counterparties by end-2012 at latest. OTCderivatives contracts should be reported to trade repositories".

The core requirements set out under EMIR are:

Clearing and risk mitigation obligations for OTC derivative contracts;

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1. 2. 3. 4.

Clearing and risk mitigation obligations for OTC derivative contracts;Reporting obligations for derivative contracts;Requirements for Central Counterparties;Requirements for Trade Repositories.

EMIR has been further supplemented by a number of delegated and implementing acts, someof which are adopting regulatory and implementing technical standards developed by theEuropean Supervisory Authorities (ESAs) in accordance with their mandates under theRegulation. Unless otherwise specified, references to EMIR should therefore be considered toinclude both the primary Regulation (Regulation (EU) No 648/2012) and relevant delegatedand implementing acts.

Report on the RegulationIn accordance with Article 85(1) of EMIR, the Commission is required to prepare a generalreport on EMIR which shall be submitted to the European Parliament and the Council, togetherwith any appropriate proposals.

The Commission must in particular:

(a) Assess, in cooperation with the members of the ESCB (the European System of CentralBanks), the need for any measure to facilitate the access of CCPs to central bank liquidityfacilities;

(b) Assess, in coordination with ESMA and the relevant sectoral authorities, the systemicimportance of the transactions of non-financial firms in OTC derivatives and, in particular, theimpact of this Regulation on the use of OTC derivatives by non-financial firms;

(c) Assess, in the light of experience, the functioning of the supervisory framework for CCPs,including the effectiveness of supervisory colleges, the respective voting modalities laid downin Article 19(3), and the role of ESMA, in particular during the authorisation process for CCPs;

(d) Assess, in cooperation with ESMA and ESRB, the efficiency of margining requirements tolimit procyclicality and the need to define additional intervention capacity in this area;

(e) Assess in cooperation with ESMA the evolution of CCP’s policies on collateral marginingand securing requirements and their adaptation to the specific activities and risk profiles of theirusers.

The Commission services will also take into account when preparing the report any other keyissues that have been identified during the implementation of EMIR to date. In particular, theCommission services will take into account the findings of reports submitted by ESMA inaccordance with Article 85(3) of EMIR.

FeedbackThe purpose of this document is to consult all stakeholders on their views and experiences inthe implementation of EMIR to date. Interested parties are invited to send their contributions by13 August 2015 through the online questionnaire below. Only responses received through theonline questionnaire will be included in the report summarising responses. The responses tothis consultation will provide important guidance to the Commission services in preparing theirfinal report.

Responses to this consultation should relate to the legislative text of EMIR. Responses

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Responses to this consultation should relate to the legislative text of EMIR. Responsesare expected to be of most use where issues raised in response to the questions aresupported with data or detailed narrative, and accompanied by specific suggestions forsolutions to address them. Such suggestions may relate to either the primaryRegulation or to relevant delegated and implementing acts. Supplementary questionsproviding for free text repsonses may appear depending on the response to a multiplechoice question.

The Commission services recognise that certain core requirements and procedures providedfor under EMIR are yet to be implemented or completed. In particular, at this stage clearingobligations and obligations to exchange collateral in respect of non-cleared OTC derivativestransactions are not yet in force. It is therefore envisaged that the report required under Article85(1) will focus primarily on those aspects of EMIR which have been implemented.

Nonetheless, the Commission services welcome the views of stakeholders as to any identifiedissues with respect to the implementation of upcoming requirements. However, thisconsultation does not seek views on any regulatory technical standards that have not yet beenadopted by the Commission. This includes the proposed regulatory technical standards on themandatory clearing of certain interest rate products in accordance with Article 5 of EMIR,delivered to the Commission by ESMA on 3rd October 2014 and the joint draft regulatorytechnical standards of the ESAs on margin for uncleared OTC derivatives transactionsmandated in accordance with Article 11(3) of EMIR.

Further, with respect to the regulatory and implementing technical standards on trade reportingadopted by the Commission in accordance with Article 9 of EMIR (Regulation No. 148/2013and Regulation No. 1247/2012) the Commission services note that ESMA recently conductedits own consultation on amended versions of these standards. This consultation does thereforenot seek any views with respect to the content of either  and Regulation No. 148/2013

nor the amended versions proposed by ESMA.Regulation No. 1247/2012

The Commission services will publish all responses received on the Commissionwebsite unless confidentiality is requested.

Please note: In order to ensure a fair and transparent consultation process only responses and included in thereceived through our online questionnaire will be taken into account

report summarising the responses. Should you have a problem completing this questionnaireor if you require particular assistance, please contact .fisma-c2@ec.europa.eu

More information:

on this consultationon the protection of personal data regime for this consultation 

1. Information about you

*Are you replying as:a private individualan organisation or a companya public authority or an international organisation

*

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*Name of your organisation:

NASDAQ OMX Clearing AB

Contact email address:The information you provide here is for administrative purposes only and will not be published

adam.goransson@nasdaq.com

*Is your organisation included in the Transparency Register?(If your organisation is not registered, , although it is not compulsorywe invite you to register hereto be registered to reply to this consultation. )Why a transparency register?

YesNo

*If so, please indicate your Register ID number:

76648765687-29

*Type of organisation:Academic institution Company, SME, micro-enterprise, sole traderConsultancy, law firm Consumer organisationIndustry association MediaNon-governmental organisation Think tankTrade union Other

*Where are you based and/or where do you carry out your activity?

Sweden

*

*

*

*

*

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*Field of activity or sector ( ):if applicableat least 1 choice(s)

BankingInsurancePension provisionInvestment management (e.g. hedge funds, private equity funds, venture capital funds,

money market funds, securities)Market infrastructure operation (e.g. CCPs, Trade Repositories, CSDs, Stock

exchanges)Trade AssociationNon-Financial / Corporate enterpriseGovernmental Organisation / RegulatorLaw firm / ConsultancyOtherNot applicable

 Important notice on the publication of responses

*Contributions received are intended for publication on the Commission’s website. Do you agreeto your contribution being published?(   )see specific privacy statement

Yes, I agree to my response being published under the name I indicate (name of your)organisation/company/public authority or your name if your reply as an individual

No, I do not want my response to be published

2. Your opinion

Part I - Questions on elements of EMIR to be reviewed

according to Article 85(1)(a)-(e)

*

*

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Question 1.1: CCP LiquidityArticle 85(1)(a) states that: “The Commission shall …… assess, in cooperation with the membersof the ESCB, the need for any measure to facilitate the access of CCPs to central bank liquidityfacilities”.

There are no provisions under EMIR facilitating the access of CCPs authorised under EMIR toadditional liquidity from central banks in stress or crisis situations, either from the perspective ofthe members of the ESCB or from the perspective of CCPs. However, it is recognised that insome member states, CCPs are required to obtain authorisation as credit institutions inaccordance with Article 6 of Directive 2006/48/EC. Such authorisation creates access to centralbank liquidity for those CCPs. On the other hand, other member states do not require CCPs toobtain such an authorisation.

Is there a need for measures to facilitate the access of CCPs to central bank liquidity facilities?

Yes, Nasdaq Clearing believes there is a need for measures to facilitate

access of CCPs to central bank liquidity facilities. However access to

central bank liquidity should be seen as an additional tool, and not be

mandatory for the CCP under EMIR.

If your answer is yes, what are the measures that should be considered and why?

Nasdaq Clearing is of the opinion that access to central bank liquidity

for CCPs would have a positive impact on the robustness of CCPs,

especially in a stressed environment. Even if a central bank of a

currency area where a CCP is established could provide liquidity in a

stressed situation on an ad hoc basis, it would be more efficient and

robust to have such measures defined ex ante. Moreover, in many EU

member states it is a requirement that an entity must be a credit

institution in order to have access to central bank liquidity. Such

requirement for CCPs is inefficient and undesired, both from a CCP and a

regulator perspective.

Nasdaq Clearing appreciates that there are challenges to find the tools

which could be implemented in all EU members and that the final decision

to grant access lies with the respective central bank, but it would be

recommendable to facilitate a discussion regarding such tools within the

European System of Central Banks (ESCB). However, it is important that

any measures to require central bank liquidity to CCPs are implemented

by all member states in a harmonized way. Moreover it is import that no

restrictions in the regulation in relation to central bank liquidity is

imposed which could create a position where a CCP would not fulfill its

regulatory obligations as a CCP because the relevant central bank would

not provide the CCP access to the liquidity facilities.

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Question 1.2: Non-Financial FirmsArticle 85(1)(b) states that: “ The Commission shall…..assess, in coordination with ESMA and therelevant sectoral authorities, the systemic importance of the transactions of non-financial firms inOTC derivatives and, in particular, the impact of this Regulation on the use of OTC derivatives bynon-financial firms;”

Non-financial counterparties are subject to certain requirements of EMIR. However, suchcounterparties will not be subject to the requirements to centrally clear or to exchange collateralon non-centrally cleared transactions provided that they are not in breach of predefinedthresholds, in accordance with Article 10 of EMIR. Further, it is recognised that non-financialcounterparties use OTC derivative contracts in order to cover themselves against commercialrisks directly linked to their commercial or treasury financing activities. Such contracts aretherefore excluded from the calculation of the clearing threshold.

(a) Are the clearing thresholds for non-hedging transactions (Article 11, Regulation (EU) No149/2013) and the corresponding definition of contracts objectively measurable as reducing risksdirectly relating the commercial activity or treasury financing activity (Article 10, Regulation (EU)No 149/2013) adequately defined to capture those non-financial counterparties that should bedeemed as systemically important?

If your answer is no, what alternative methodology or thresholds could be considered to ensurethat only systemically important non-financial counterparties are captured by higherrequirements under EMIR?

(b) Please explain your views on any elements of EMIR that you believe have created unintendedconsequences for non-financial counterparties. How could these be addressed?

Bank guarantees play an important role as liquid collateral for

non-financial companies active in the energy market. The current

requirement in section 2.1, point h) in Annex 1 in Regulation (EU) No

153/2013, to require full backing of bank guarantees poses a big

problem. We urge the Commission to consider deleting this requirement.

When the three year phase-in period for this requirement of full

backing, allowed in Article 62 of Regulation (EU) No 153/2013, expires

in March 2016, there is a risk that these non-financial firms find CCP

clearing too expensive and revert to bilateral contracts instead. The

Nordic electricity market, which is considered the world’s most liquid

and transparent, risks being deteriorated.

Allowing bank guarantees would facilitate for the small and medium sized

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clearing members since these members in general do not have access to

other types of collateral like securities and bonds, etc. If the

exemption expires as currently planned, they would need to replace the

existing bank guarantees with cash and face a significant cost increase

for hedging. We believe that it is a risk that the small and medium

sized non-financial members will withdraw from the market and revert to

more bilateral trading outside transparent and supervised venues and

outside CCP clearing. There is a risk that the shift towards bilateral

trading will lead to increased market concentration, less competition

and ultimately to lower social welfare gains. In dialog with our small

and medium sized members they confirm that this shift is due to the

impact of regulatory requirements and increased cost due to the bank

guarantee situation. This would result in more trading directly with the

larger producers often referred to as “origination business”. Such a

development would clearly contradict the G20 objectives to create more

transparent and resilient derivative markets and also the Commission’s

objectives in relation to a European Energy Union. The reduced

efficiency might ultimately lead to higher energy bills for consumers.

In the markets where the bank guarantee model is used, it has attracted

a high, stable and diverse number of market participants, financial

companies as well as non-financial companies, all contributing to market

liquidity. It has led to a sound competition, benefiting the market as a

whole, including the end users and consumers. For these reasons, for

instance the Nordic power market has been used as a model for European

legislation such as the Regulation on Energy Market Integrity and

Transparency (REMIT). Restricting the use of bank guarantees would risk

reversing the positive developments and the opportunity to further

develop and integrate the European energy market will be lost.

EMIR includes strict risk management requirements for CCPs, which are

absolutely crucial, and there are capital adequacy requirements for the

bank issuing a bank guarantee. It should in addition be noted that when

looking at the financial system as a whole, the non-financial companies

in the energy sector do not have systemic importance. Further, it is

important to recognize the fundamental function of bank guarantees as

reflecting invested capital into production facilities (no bank will

issue a bank guarantee without verifying the financial position of the

non-financial company in question).

We therefore believe that requiring fully-backed bank guarantees from

non-financial energy companies is an unreasonable and disproportionate

response to the risk exposure. Exchange traded derivatives are an

essential part of non-financials companies’ financial risk management

through hedging. Fundamental participants in the energy markets usually

hedge their long term power production and consumption several years

into the future. Consequently, an anticipated prohibition of bank

guarantees that are not fully backed as from March 2016 contributes to

uncertainty and affects the trading and clearing behavior, especially

the commitment to enter into long term contracts from 2016 and further

out on the curve. Therefore, it is a matter of great importance to the

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market participants to have clarity as soon as possible, in order to

prevent the negative market shift as described above.

Non-financial companies have represented 60% of total traded and cleared

volume in the Nordic financial power market during the last five years.

Approximately 264 out of Nasdaq’s in total 320 clearing members are

non-financial members. In the Nordic power market more than 95% of the

financial transactions are centrally cleared, which can be compared with

the German financial power trading market where only approximately 30%

of the trades are cleared with a regulated CCP.

Article 46 EMIR allows the use of bank guarantees as collateral by

non-financial clearing members. However, we believe that the requirement

in Regulation (EU) No 153/2013 for full backing, in practice negates the

use of bank guarantees. Such a requirement is not in line with the EMIR

Level 1 text which does not require non-financial clearing members to

post further collateral in addition to a bank guarantee.

We emphasize the need to find a solution as soon as possible. We urge

the Commission to delete the requirement for fully backed bank

guarantees. To allow analysis and considerations during the EMIR review,

while at the same time avoiding a risk of damaging the market, we

suggest Regulation (EU) No 153/2013 extending the phase-in period

allowed in Article 62.

(c) Has EMIR impacted the use of, or access to, OTC derivatives by non-financial firms? Pleaseprovide evidence or specific examples of observed changes if so.

Question 1.3: CCP CollegesArticle 85(1)(c) states that: “The Commission shall….assess, in the light of experience, thefunctioning of the supervisory framework for CCPs, including the effectiveness of supervisorycolleges, the respective voting modalities laid down in Article 19(3), and the role of ESMA, inparticular during the authorisation process for CCPs.”

In order for a CCP established in the Union to provide clearing services, it must obtainauthorisation under Article 14 of EMIR. EMIR introduced a college system for the granting of suchauthorisation, which has, to date, been used for the process of authorisation of sixteen CCPs. TheCollege comprises members from relevant competent authorities, relevant members of theEuropean System of Central Banks and ESMA.

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(a) What are your views on the functioning of supervisory colleges for CCPs?

Nasdaq Clearing does not have any specific comments about the initial

authorisation of CCPs under Article 14 of EMIR. However, it is our view

that Article 15 and Article 49 of EMIR – both of which are materially

affected by the functioning of the college system – should be considered

under the next question.

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(b) What issues have you identified with respect to the college system during the authorisationprocess for EU CCPs, if any? How could these be addressed?

At present it is not entirely clear when a notification under article 15

or 49 is necessary – and if a notification is made, it is not entirely

clear whether the college or ESMA will be involved, whether approval is

necessary, or the timeframes for approval.

For reasons of clarity, fairness, innovation and to ensure some

jurisdictions do not receive a competitive advantage over others the

following areas need to be considered and uniform guidelines need to be

provided to all competent authorities and colleges – and these need to

be adhered to:

-Timing – there is uncertainty about timing due to the lack of clarity.

Reasonable timeframes should be set.

-Innovation – It should not be necessary for every new product and every

service change to go through an approval process. This delays

innovation across the market and is detrimental to CCPs as well as their

members.

-Scope – Notifications should be targeted towards those products or

activities which are completely new, not adaptations to existing.

Consideration should be taken of ‘what is new?’ – It is obvious that a

new risk model (e.g. moving from SPAN to VaR) or an additional asset

class are ‘new’ and would therefore be notified, but where is the line

drawn? For example due to the nature of the commodities market many

products are ‘new’ as they are a new commodity, but the procedures are

exactly the same as those already used by the CCP and would therefore

also be covered by the existing commodities license.

-In relation to article 49 of EMIR, we have concerns about the meaning

of “significant” and the absence of time constraints for the validation

procedure.

-Equal treatment and competition among CCPs – different

countries/colleges appear to have developed their own criteria and

methodology for new approvals, which may lead to a competitive advantage

for some.

-There is also some uncertainty as to how new OTC products get on to the

Public Register, especially if they have not gone through a full

assessment by the college. In addition, if a new product is added on

the OTC list it is unclear if and when they will be considered for a

clearing obligation. It should not be necessary for a full approval for

every new OTC product, so this process needs to be considered and

clarified.

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Question 1.4: ProcyclicalityArticle 85(1)(d) states that: “The Commission shall….assess, in cooperation with ESMA andESRB, the efficiency of margining requirements to limit procyclicality and the need to defineadditional intervention capacity in this area.”

CCPs authorised in the Union must take into account potential procyclical effects whencalculating their margin requirements. The specific factors that must be considered to avoiddisruptive movements in margin calculations are provided for under Article 41 EMIR and Article28 of Commission Delegated Regulation (EU) No 153/2013.

(a) Are the requirements under Article 41 EMIR and Article 28 Regulation (EU) No 153/2013adequate to limit procyclical effects on CCPs’ financial resources?

If your answer is no, how could they be improved?

(b) Is there a need to define additional capacity for authorities to intervene in this area?

If your answer is yes, what measures for intervention should be considered and why?

Question 1.5: CCP Margins and CollateralArticle 85(1)(e) states that: “The Commission shall….assess, in cooperation with ESMA theevolution of CCP’s policies on collateral margining and securing requirements and theiradaptation to the specific activities and risk profiles of their users.”

Collateral collected by way of initial and variation margin requirements is the primary source offinancial resources available to a CCP. Title IV of EMIR and Commission Delegated Regulation(EU) No 153/2013 provide detailed requirements for the calculation of margin levels by CCPs aswell as defining the assets that may be considered eligible as collateral.

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(a) Have CCPs’ policies on collateral and margin developed in a balanced and effective way?

No.

If your answer is no, for what reasons? How could they be improved?

Collateral haircuts (Article 41 Regulation (EU) No 153/2013):

Currently EMIR requires that collateral haircuts should be calculated in

a conservative manner to limit as far as possible procyclical effects.

The haircuts should according to this article recognize that collateral

may need to be liquidated in stressed market conditions and that the CCP

should take into account the time required to liquidate it. It is Nasdaq

Clearing’s opinion that these requirements need to be clarified in order

to avoid discrepancies in interpretations among CCPs and EMIR colleges.

Any clarification should also take into account potential discrepancies

in these requirements in relation to different types of assets.

Nasdaq Clearing recommends that clearer requirements should be set on

the various input parameters to the haircut calculations, such as

lookback period, confidence level and liquidation periods. In order to

limit procyclicality, a 10 year lookback period could be applied (with

same alternative buffers as for margins), thus aligning the requirement

on haircuts with that of margin requirements. The same methodology for

determining liquidation periods in margin requirements could be used

when determining liquidation periods for collateral. To reflect that

collateral might have to be liquidated under stressed market conditions,

Nasdaq Clearing would recommend that a 99.9% confidence level is used.

Portfolio margining (Article 27 Regulation (EU) No 153/2013):

Nasdaq Clearing is of the opinion that EMIR can be improved by making

the provisions more model-independent by supporting both parametric and

portfolio (VaR-type) margin models, but without prescribing any specific

model. Nasdaq Clearing supports all recommendations set forth in EACH’s

paper on portfolio margining. In general, Nasdaq Clearing would

recommend a more principle based approach to portfolio margining in

EMIR, rather than the current focus on standards around correlation,

taking into account both liquidation processes and the behavior of risk

factors in both normal and stressed events. From a statistical point of

view the requirement on reliability of correlations is not possible to

demonstrate. Similar problems exist when defining significant

correlations, especially since portfolio effects exist even at zero

correlation. Therefore focus should be shifted towards the actual margin

offsets and to ensure that these are in line with historical

observations and to the stated confidence level of the CCP. The

performance of portfolio margining is ensured through thorough back

testing and sensitivity testing as well as default management fire

drills.

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(b) Is the spectrum of eligible collateral appropriate to strike the right balance between the liquidityneeds of the CCP and its participants?

No.

If your answer is no, for what reasons? How could it be improved?

Please refer to comments made under Q1.2b above.

Part II - General questions

Question 2.1: Definitions and ScopeTitle I of the Regulation contains Articles 1-2.

Article 1 determines the primary scope of the Regulation, in particular with regard to public andprivate entities.

Article 2 provides definitions in use throughout the Regulation which further determine the scopeof application of certain of its provisions.

Are there any provisions or definitions contained within Article 1 and 2 of EMIR that have createdunintended consequences in terms of the scope of contracts or entities that are covered by therequirements?

If your answer is yes, please provide evidence or specific examples. How could these beaddressed?

Question 2.2: Clearing ObligationsUnder EMIR, OTC derivatives transactions that have been declared subject to a clearingobligation must be cleared centrally through a CCP authorised or recognised in the Union. ESMAhas proposed a first set of mandatory clearing obligations for interest rate swaps which are yet tocome into force. Counterparties are therefore in the process of preparing to meet the clearingobligation, to the extent that their OTC derivatives contracts are in scope of the requirements.

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(a) With respect to access to clearing for counterparties that intend to clear directly or indirectly asclients; are there any unforeseen difficulties that have arisen with respect to establishing clientclearing relationships in accordance with EMIR?

No unforeseen difficulties.

Recognising industry comments about difficulties in establishing

indirect clearing under EMIR and the slow uptake of segregated client

clearing in Europe, Nasdaq Clearing has historically offered segregated

client accounts and many institutional clients (mainly in the Nordics)

use one of the segregated account types offered. Individually segregated

accounts are supported both under the principal model (with a clearing

broker acting as principal) but also in an agent model where the client

has a direct legal relationship with the CCP and can post collateral

directly to the CCP.

Nasdaq Clearing offers its customers a clearing model incorporating both

client clearing access through a clearing broker (principal model) as

well as direct access for a client to the clearing house (agent model).

This facilitates for clients with different needs to find a suitable

clearing solution with Nasdaq Clearing. Nasdaq Clearing has a full range

offering, both to CCP members and clients, in terms of segregation of

positions, settlement and collateral. Members and clients have the

possibility to choose between basic segregation between members and

clients and advanced account types where the counterparty risk is

between the clearing house and client, including the option where

collateral is posted directly to the clearing house by the client.

Nasdaq Clearing is well prepared to support client clearing

relationships in accordance with EMIR and the clearing obligation.

If your answer is yes, please provide evidence or specific examples. How could these beaddressed?

(b) Are there any other significant ongoing impediments or unintended consequences with respectto preparing to meet clearing obligations generally in accordance with Article 4 of EMIR?

Yes.

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If your answer is yes, please provide evidence or specific examples. How could these beaddressed?

Nasdaq Clearing encourages ESMA and the Commission to take into

consideration the characteristics of each financial market and the

implications of a clearing obligation from a regional risk reduction

point of view and also with the objective to promote transparency. In

the Nordic region there are still large volumes on standardized

contracts that are kept OTC, which have no reason for remaining

un-cleared. Such classes (i.e. plain vanilla equity derivative contracts

and the so called flexible derivatives) are the easiest OTC trades to be

mandated for clearing as it would have a minimal impact on clearing

members’ processes and operations.

Nasdaq Clearing has made investments in its infrastructure, in

accordance with EMIR, and is well prepared to handle its part in the

clearing obligation, including onboarding of new participants.

In order to reduce systematic risk, Nasdaq Clearing believes that the

inclusion of the proposed six EEA currencies (non-G4 European

currencies) in the clearing obligation regime would significantly

increase the fulfillment of the overarching aim to reduce systemic risk.

Question 2.3: Trade reportingMandatory reporting of all derivative transactions to trade repositories came into effect inFebruary 2014. The Commission services are interested in understanding the experiences ofreporting counterparties and trade repositories, as well as national competent authorities, inimplementing these requirements. As noted above, ESMA recently conducted its ownconsultation on amended versions of these standards. This consultation does therefore not seekany views with respect to the content of either Regulation No. 148/2013 and Regulation No.1247/2012 nor the proposed amended versions.

Are there any other significant ongoing impediments or unintended consequences with respect tomeeting trade reporting obligations in accordance with Article 9 of EMIR?

Yes. Nasdaq Clearing believes there are certain areas that need to be

addressed in order to better and more efficiently achieve the purposes

of the reporting obligation in accordance with Article 9 EMIR.

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If your answer is yes, please provide evidence or specific examples. How could these beaddressed?

There is uncertainty among market participants how to interpret the

reporting requirements for certain products and reportable events, this

uncertainty seemingly due to the lack of clear documentation and

guidance both from the regulators and the trade repositories. While the

various forms of guidance issued by ESMA and the trade repositories has

been helpful to resolve some reporting issues Nasdaq Clearing believes

there needs to be a higher degree of clarity and also supports the view

of EACH that there needs to be a higher degree of legal certainty with

regard to such guidance.

Further, Nasdaq Clearing requests that the reporting obligation under

EMIR is harmonized with the obligations to report trades under other

European legislation such as MiFID II and REMIT. This harmonization is

vital to avoid uncertainty for market participants and also to avoid all

forms of reporting duplication. It is also important that all these

reporting obligations are aligned with global reporting requirements.

Additionally, Nasdaq Clearing also supports the view put forward by EACH

that sufficient time needs to be provided for market participants to

implement any changes to the trade reporting requirements.

Market participants interpret the reporting requirements and guidance

differently, both regarding how to populate certain fields (e.g.

notional, interest rate, mark-to-market, collateral), the format of

reportable fields as well as how to report certain lifecycle events.

The issues of reporting requirement interpretation and formatting could

be addressed by issuing complete and comprehensive sets of RTS that

fully cover the requirements and formatting for the data to be reported.

This would remove the need for complementary non-legally binding

documentation such as Q&As etc.

Question 2.4: Risk Mitigation TechniquesRisk mitigation techniques are provided for under Articles 11(1) and 11(2) of EMIR and furtherdefined in Commission Delegated Regulation (EU) No 149/2013. Risk mitigation techniquesbegan entering into force in March 2013 and apply to OTC derivative transactions that are notcentrally cleared. They include obligations with respect to transaction confirmation, transactionvaluation, portfolio reconciliation, portfolio compression and dispute resolution.

Are there any significant ongoing impediments or unintended consequences with respect tomeeting risk mitigation obligations in accordance with Articles 11(1) and (2) of EMIR?

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If your answer is yes, please provide evidence or specific examples. How could these beaddressed?

Question 2.5: Exhange of CollateralArticle 11(3) of EMIR mandates the bilateral exchange of collateral for OTC derivative contractsthat are not centrally cleared. Article 11(15) mandates the ESAs to further define this requirement,including the levels and type of collateral and segregation arrangements required. The ESAsconsulted publically on their draft proposals in the summer of 2014.

The ESA are now in the process of finalising these draft Regulatory Technical Standards. It istherefore recognised that the final requirements are not fully certain at this stage. TheCommission services are not seeking comment on the content on the proposed rules publishedby the ESAs. Nonetheless the Commission services welcome any views from stakeholders onimplementation issues experienced to date.

Are there any significant ongoing impediments or unintended consequences anticipated withrespect to meeting obligations to exchange collateral in accordance with Article 11(3) underEMIR?

If your answer is yes, please provide evidence or specific examples. How could these beaddressed?

Question 2.6: Cross-Border Activity in the OTC derivatives marketsOTC derivatives markets are global in nature, with many transactions involving Unioncounterparties undertaken on a cross-border basis or using third country infrastructures. EMIRprovides a framework to enable cross-border activity to continue whilst ensuring, on the one hand,that the objectives of EMIR are safeguarded and on the other hand that duplicative and conflictingrequirements are minimised.

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(a) With respect to activities involving counterparties established in third country jurisdictions; arethere any provisions or definitions within EMIR that pose challenges for EU entities whentransacting on a cross-border basis?

If your answer is yes, please provide evidence or specific examples. How could these beaddressed?

(b) Are there any provisions within EMIR that create a disadvantage for EU counterparties overnon-EU entities?

If your answer is yes, please provide evidence or specific examples. How could these beaddressed?5000 character(s) maximum 

Question 2.7: TransparencyThe overarching objective of the trade reporting requirement under EMIR is to ensure thatnational competent authorities and other regulatory bodies have data available to fulfil theirregulatory mandates by monitoring activity in the derivatives markets.

Have any significant ongoing impediments arisen to ensuring that national competent authorities,international regulators and the public have the envisaged access to data reported to traderepositories?5000 character(s) maximum 

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If your answer is yes, please provide evidence or specific examples. How could these beaddressed?

Question 2.8: Requirements for CCPsTitles IV and V of EMIR set out detailed and uniform prudential and business conductrequirements for all CCPs operating in the Union. CCPs operating prior to EMIR’s entry into forceare required to obtain authorisation in accordance with the new requirements of EMIR, throughthe EU supervisory college process.

(a) With respect to access to clearing for counterparties that intend to clear directly or indirectly asclients; are there any unforeseen difficulties that have arisen with respect to establishing clientclearing relationships in accordance with EMIR?

(a) Are there any significant ongoing impediments or unintended consequences with respect toCCPs’ ability to meet requirements in accordance with Titles IV and V of EMIR?

If your answer is yes, please provide evidence or specific examples. How could these beaddressed?

(b) Are the requirements of Titles IV and V sufficiently robust to ensure appropriate levels of riskmanagement and client asset protection with respect to EU CCPs and their participants?

If your answer is no, for what reasons? How could they be improved?

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(c) Are there any requirements for CCPs which would benefit from further precision in order toachieve a more consistent application by authorities across the Union?5000 character(s) maximum 

Yes

If your answer is yes, which requirements and how could they be better defined?

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Capital Requirement (Article 16 EMIR, Article 2 Regulation (EU) No

152/2013):

Currently EMIR is unclear on whether non-recurring expenses (or

revenues) can be excluded when estimating capital requirement for

orderly wind-down, business risk and operational risk. This means that

e.g. one-off restructuring expenses which stems from cost reducing

measures within a CCP would lead to an adverse effect where capital must

be increased even if the ongoing cost base will be reduced. If

regulation does not take into account such effects, the result would be

capital inefficiency and higher cost without an accurate capture of real

exposure and risk.

Nasdaq Clearing recommends that Article 2 (4) Regulation (EU) No

152/2013 Article is clarified, to mandate national competent authorities

to approve that non-recurring expenses (and revenues) could be exempted

in the calculation of capital requirement in accordance with Article 16.

Aggregation of segregated client accounts in stress testing:

Currently EMIR is unclear on how client accounts are to be aggregated in

stress tests. The stress tests ensure that sufficient financial

resources are in place to cover a predefined number of member defaults.

These members comprise of the clearing members to which the CCP has the

largest exposures under extreme but plausible market conditions. The

provisions, however, do not clearly state which accounts and to what

extent such accounts are to be included in the member default. Nasdaq

Clearing requests a clarification on how client accounts, both

segregated and omnibus, are to be aggregated when calculating a member’s

exposure. In the event of a default, it is likely that a large portion

of the accounts are ported to other clearing members, and therefore it

is of Nasdaq Clearing’s opinion that these accounts, that are assumed to

be ported, are excluded from the clearing member’s aggregated exposure.

The likelihood of successful porting is significantly higher for

individually segregated accounts. Such higher probability must be taken

into account in the stress testing.

Nasdaq Clearing requests clearer provisions on client aggregation in

stress tests. If all client exposures are aggregated to the member

exposure, the implied assumption is that no porting is successful. This

assumption leads to misleading stress test results and also results in

excessive capital requirements. Furthermore, it is important not to

create a disincentive for segregated client accounts in relation to

capital requirement calculations. The client aggregation should ideally

reflect the likelihood of successful porting of the various types of

accounts, such as segregated and omnibus accounts. Nasdaq Clearing

acknowledges that the likelihood of successful porting is difficult to

assess, and that a more standardized metric most likely would be simpler

to implement. Such a metric could be a fixed percentage of client

accounts, such as X% of aggregated client exposures. The porting process

and the likelihood of successful porting could be assessed in the

regular default management fire drills that are held at least annually

by the CCPs.

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Question 2.9: Requirements for Trade RepositoriesTitles VI and VII of EMIR set out detailed and uniform requirements for all trade repositoriesoperating in the Union. Trade repositories operating prior to EMIR’s entry into force are requiredto obtain authorisation by ESMA in accordance with the requirements of EMIR. To date, ESMAhas authorised six trade repositories. ESMA is the primary supervisor for Union trade repositoriesand has the power to issue fines for non-compliance with the requirements of EMIR.

Are there any significant ongoing impediments or unintended consequences with respect torequirements for trade repositories that have arisen during implementation of Titles VI and VII ofEMIR, including Annex II?

Yes, Nasdaq Clearing believes there are certain areas that need to be

addressed with respect to the requirements for trade repositories to

better achieve the purposes of reporting.

It appears that the implementation of the reporting provisions slightly

differs from one trade repository to another, both in regards to data

fields to be populated, the format for data and the technical solutions

used. Different formatting and technical implementations complicates

reporting, fields and details to report should be identical for all

repositories and should closely align with the requirements in the

legislation.

Also, too differing implementations from trade repositories could lead

to unwanted lock-in situations making it difficult for a market

participant to switch from one trade repository to another.

If your answer is yes, please provide evidence or specific examples. How could these beaddressed?

Nasdaq Clearing believes the issues of reporting requirement

interpretation and formatting for trade repositories would also be

addressed by issuing complete and comprehensive sets of RTS as discussed

in the reply to question 2.3 and requiring trade repositories to

strictly adhere to these.

Question 2.10: Additional Stakeholder FeedbackIn addition to the questions set out above, the Commission services welcome feedback fromstakeholders on any additional issues or unintended consequences that have arisen during theimplementation of EMIR which are not covered by those questions.

Are there any significant ongoing impediments or unintended consequences with respect to anyrequirements or provisions under EMIR and not referenced in the preceding questions that havearisen during implementation?

Yes

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If your answer is yes, please provide evidence or specific examples. How could these beaddressed?

As a significant and unintended consequence, leaving OTC equity

derivatives completely out of the scope of derivatives subject to the

EMIR clearing obligation, the MiFID II framework’s ability to fulfil the

G20 agreement that all standardised OTC derivative contracts should be

traded on exchanges or electronic trading platforms where appropriate

has been limited considerably.

Specifically, Nasdaq Clearing is concerned about the absence of a

clearing obligation for OTC equity derivatives economically equivalent

to ETDs (sometimes referred to as ‘lookalikes’), which when coupled with

the MiFIR transparency requirements on organised venues acts as a

disincentive to use transparent markets and central clearing.

Corresponding well to the liquid market as envisaged under MiFIR, main

equity derivative markets today are characterised by a high number of

active market participants and a good mix of liquidity providers and

takers which executes trades frequently in sizes smaller than what is

considered large in scale. Market activity is indicated by a high number

of resting bids and offers, typically available in a majority of listed

series, leading to narrow spreads for transactions of normal market

size. Yet still, the EMIR clearing obligation is the pre-requisite that

defines the scope of derivatives that, if passing the liquidity test,

may be declared subject to the MiFIR trading obligation.

Consequently, leaving out of the clearing obligation’s scope OTC

derivatives that are ETD lookalikes, MiFIR is unable to mandate trading

on multilateral venues even for the most standardised and super liquid

equity derivative contracts that should be sufficiently liquid to trade

only on multilateral venues subject to comparable regulation. The risk

is that the lack of a trading obligation combined with the absence of a

negotiated trade waiver for non-equity instruments could actually

incentivise OTC trading and reduce overall transparency in contradiction

with the G20 commitments.

A pragmatic and simple solution to the described problem with limited

impact on market participants’ and clearinghouses’ operations would be

to implement a general clearing obligation for all OTC derivative

contracts that are economically equivalent to an ETD which have been

listed on a regulated market for at least five calendar years. It should

implicitly be understood that for such contract the degree of

standardisation and level of liquidity is sufficient for clearing. Also

the availability of fair, reliable and generally accepted pricing

information is the best possible.

Furthermore, most CCPs today offer clearing services for

semi-standardised OTC equity derivatives with a limited and standard set

of ‘flexible’ terms. These are per definition well-defined variations of

the contracts listed on the regulated market. The flexible contracts are

cleared together with ETDs very efficiently in the same clearing

architecture by applying cross-margining/correlation and netting of

deliveries and cash flows. The contracts also benefit from the

transparency on ETDs as the pricing conventions are the same, e.g. the

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same forward curves and implied volatility surfaces can be used. It’s

appropriate to clear also these contracts through central counterparties

and it would make sense to include in the clearing obligation OTC

derivative contracts whose contract specifications, except the flexible

terms listed below, correspond to the specifications of an ETD which

have been listed on a regulated market for at least five calendar years.

Flexible terms:

- Maturity

- Last trading/expiration day

- Exercise style (American/European)

- Exercise price

- Daily and/or final settlement type (cash/physical)

3. Additional information

Should you wish to provide additional information (e.g. a position paper, report) or raise specificpoints not covered by the questionnaire, you can upload your additional document(s) here:

Useful linksConsultation details (http://ec.europa.eu/finance/consultations/2015/emir-revision/index_en.htm)

Consultation document(http://ec.europa.eu/finance/consultations/2015/emir-revision/docs/consultation-document_en.pdf)

Specific privacy statement(http://ec.europa.eu/finance/consultations/2015/emir-revision/docs/privacy-statement_en.pdf)

More on the Transparency register (http://ec.europa.eu/transparencyregister/public/homePage.do?locale=en)

Contact fisma-c2@ec.europa.eu