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Update on ESMA Clearing Obligations for Credit Default Swaps

On September 24, the European Securities and Markets Authority (ESMA) published on its website the public responses to its Consultation Paper on the draft regulatory standards (RTS) for Clearing Obligation No. 2 concerning credit default swaps (CDS). The consultation period closed on September 18. ESMA received nearly 30 responses from various industry participants.  ESMA, once it considers the responses to its consultations for the draft RTS on CDS, will issue final RTS, which are then required to be endorsed by the European Commission before the RTS becomes effective, which is expected to be December 2014 to February 2015. 

ESMA intends to adopt a phased-in implementation schedule from the date on which the RTS for CDS come into force to encourage an orderly process of application as follows: 

  • Category 1 – Clearing members of at least one European Market Infrastructure Regulation (EMIR)-authorized central counterparty that clears the specified CDS products subject to the clearing obligation, six months;
  • Category 2 – Non-clearing members that are financial counterparties (as defined under EMIR) or alternative investment funds (AIFs) (as defined under the Alternative Investment Fund Managers Directive) which qualify as non-financial counterparties above the EMIR clearing threshold, 18 months; and
  • Category 3 – Non-clearing members that are non-financial counterparties above the clearing threshold as defined under EMIR (excluding AIFs), three years. 

Category 1 entities, therefore, are expected to begin to clear CDS around June to August 2015; Category 2, around June to August 2016 and Category 3, around December 2017 to February 2018. 

The Consultation Paper and the public responses can be found here.