European Markets Infrastructure Regulation (EMIR)

The European Markets Infrastructure Regulation (EMIR) is a regulation of the EU that was enacted by the European Securities and Markets Authority (ESMA) and took effect on 16 August 2012. Its main objective is to oversee all over-the-counter (OTC) derivatives by implementing measures aimed at enhancing transparency and minimizing risk within the financial system.

EMIR introduced three essential provisions:

1. Clearing
   Derivatives are required to be cleared through a central counterparty. This includes foreign exchange derivatives such as forward contracts, options, and swaps. The clearing process must receive approval from a competent authority designated by ESMA.
2. Risk mitigation for non-cleared derivatives
   This provision involves the exchange of collateral and the establishment of risk mitigation procedures. These procedures are intended to assess, monitor, and reduce the operational and credit risks associated with such contracts.
3. Reporting to Trade Repositories (TR)
   All derivative contracts, without exception, are required to be reported to a Trade Repository on a T+1 business day basis (transaction date plus one business day). These reports must contain a significant amount of information, including details such as the class of derivative and the terms of the contract.