It provides steer on reporting of derivative contracts, implementation of risk management standards and common rules for central counterparties and trade repositories.
[3] EMIR was introduced by the European Union (EU) as implementation of the G20 commitment to reduce systemic, counterparty and operational risk, and increase transparency in the OTC derivatives market.
[4] It was also designed as a preventative measure to avoid fallout during possible future financial crises similar to the collapse that followed the Lehman Brothers bankruptcy in 2008.
They must also implement new risk management standards according to EMIR, including operational processes and margining related to their bilateral OTC derivatives.
[18] EMIR, and other legislation like it, aim to reduce systemic risk in part by increasing regulations on clearing and trading, which decreases returns and industry efforts.
[20] EMIR also advises against front-loading over the counter derivatives, or applying any associated fees to sellers alone, as this practice typically increases systemic risk.
[21] Other risk mitigation techniques as defined by EMIR include timely submission of reports and confirmations of adherence to regulation by all counterparties, and open reconciliation and compression of portfolios between involved parties.
[23] The European Securities and Markets Authority (ESMA) began developing technical standards on regulation of OTC derivatives, central counterparties and trade repositories to implement EMIR in February 2012.
[24][25] EMIR entered into force on August 16, 2012, but most of its provisions only began to apply after a regulation's technical standards take place.
[30][23] On July 12, 2013, ESMA published a discussion paper specifically describing the clearing obligation as defined by EMIR.
[31] In August 2013, UK Parliament reviewed a second EMIR statutory instrument, which outlines additional supervisory and enforcement powers allotted to central counterparties during trading and clearing.
[32] In September 2013, new obligations embedded into EMIR took effect, requiring EU banks and their counterparties to discuss and agree on processes and procedures for portfolio reconciliation and dispute resolution of derivatives executed in the OTC market.
The review, known as EMIR Refit, was proposed by the European Commission to minimise the compliance burden on small financial and non-financial counterparties.