On July 18, MFA submitted a letter to the European Commission (EC) in response to the EC’s proposed amendments to the Level I text of the European Market Infrastructure Regulation (EMIR Amending Regulation). In the letter, MFA supported the EC’s proposal to: (1) eliminate the obligation to clear OTC derivatives contracts entered into prior to the clearing obligation taking effect (i.e., the “frontloading” obligation); (2) eliminate requirement to report transactions terminated prior to 12 February 2014 (i.e., “backloading” obligation); and (3) require clearing members and clients that provide clearing services to do so under “fair, reasonable and non-discriminatory commercial terms” (the so-called “FRAND” principle).
In addition, in the letter, MFA’s provided recommendations of the following three key issues to improve the efficacy of EMIR:
- Financial Counterparty Definition – MFA strongly recommended that the EC work with the European Parliament and the Council (collectively, EU Authorities) to revise the proposed definition of “financial counterparty”. As drafted in the EMIR Amending Regulation, the proposed definition would apply to all alternative investment funds (AIFs) worldwide. Accordingly, MFA urged the EU Authorities to amend the proposed definition to capture only AIFs that are established in the EU or managed by an alternative investment fund manager (“AIFM”) authorized or registered in accordance with AIFMD.
- Single-Sided Reporting – MFA urged the EU Authorities to amend the reporting hierarchy in the proposed single-sided reporting regime, so that in a trade between a dealer and an AIF that are both financial counterparties, only the dealer financial counterparty is required to report the transaction.
- Equivalence under EMIR Article 13 – MFA urged the EC to clarify that, for purposes of relying on equivalence acts under Article 13 of EMIR, an entity is deemed “established” in a third country if it is either legally incorporated in and/or subject to regulation in that third country.
