The Emir Reforms: An Unrealistic Deadline?

Following the recent publishing of the final text of the European Markets Infrastructure Regulation (Emir), there is growing concern amongst European market participants that the year-end deadline for implementation is too soon. The reforms are effectively the European equivalent of several parts of the US Dodd-Frank Act and a key element to the European Union’s post-financial crisis safeguarding strategy. The new regulation is primarily concerned with reducing risk in off-exchange derivatives markets. To do this, Emir will require a greater percentage of over-the-counter derivatives be traded electronically, processed through clearing houses, and reported to trade repositories. Furthermore, over-the-counter derivatives that have not been cleared will be subject to risk management obligations. (1)

While the regulation itself is widely accepted, the proposed deadline has led many market participants, including pension funds, lawyers and trade industry bodies, to suggest that the regulation may be undermined if implementation is rushed. This trepidation seems valid, given the vast amount of work still to be done by European regulators in order to meet the year-end deadline for implementation. The delayed legislation means that the European regulator, the European Securities and Markets Authority (Esma), has only until late September to reflect upon the regulation, and provide its technical standards, that is, to outline exactly what will be required of the industry to comply with Emir. This would leave just three months to implement new rules. It is hard, then, to disagree with Lawyer Jeremy Jennings-Mares’ suggestion that “this cannot possibly offer enough time for the proper development of the necessary rule making.”(2)

In summary, while the reforms outlined in Emir are very necessary, the rushed implementation of these new rules is not. Instead, as much time as is required should be taken to ensure that the excessive risk levels in derivatives markets are addressed effectively. Given that Esma has frequently bemoaned a lack of resources it seems irresponsible to apply such crippling time pressures upon an authority with such an important role to play.