Report from the Commission to the European Parliament and the Council under Article 85(1) of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories

Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR) entered into force on 16 August 2012. EMIR responded to the commitment by G20 leaders in September 2009 that: "All standardised OTC derivatives contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at latest. OTC derivatives contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements". Many derivatives regulators across the globe have also now transposed this commitment into their legislative frameworks.

Prior to the financial crisis of 2007, regulators lacked information about activity in the derivatives markets; this meant that risks could remain unnoticed until they materialised. Moreover, counterparty credit risk between OTC derivative counterparties was often unmitigated, which could lead to losses materialising were one counterparty to default prior to fulfilling its obligations. Due to the high volumes of transactions across these markets and the interconnectedness of the markets' participants, such losses could pose a broader threat to the financial system.

EMIR therefore seeks to promote transparency and standardisation in derivatives markets as well as reduce systemic risk through the application of its core requirements. These are:
I. Central clearing of standardised OTC derivative contracts;
II. Margin requirements for OTC derivative contracts that are not centrally cleared;
III. Operational risk mitigation requirements for OTC derivative contracts that are not centrally cleared;
IV. Reporting of all derivative contracts;
V. Requirements for Central Counterparties (CCPs);
VI. Requirements for Trade Repositories.

In accordance with Article 85(1) of EMIR, the European Commission is required to review and prepare a general report on EMIR which shall be submitted to the European Parliament and the Council, together with any appropriate proposals. This review will take into account the need to support the European Commission's priority of promoting jobs and growth.