European Market Infrastructure Regulation

Notice on OTC derivatives, central counterparties and trade repositories

We would like to inform our customers that Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (hereinafter EMIR) specifies the tasks and obligations of legal entity counterparties to all over-the-counter (OTC) derivative contracts.

The main objective of EMIR is to improve the functioning of the European Union's OTC derivatives markets, which it aims to achieve by introducing central clearing requirements for OTC derivative transactions and reporting OTC derivative transactions to trade repositories. EMIR rules apply to both financial and non-financial counterparties (regardless of their type and size).

EMIR imposes the following main obligations on counterparties entering into OTC derivative transactions:

• Mandatory central clearing: for financial and non-financial counterparties, the Regulation stipulates a clearing obligation through a central counterparty for OTC credit and interest rate derivatives above the threshold specified in the Regulation (this refers to the use of services provided by an institution acting as an intermediary between the seller and the buyer, which settles the transaction and guarantees execution).
• Reporting to trade repositories: all OTC derivative transactions must be reported to a trade repository. For this purpose, the legal entity counterparties involved in the transaction subject to reporting requirements must have an LEI (Legal Entity Identifier) code. The LEI consists of 20 alphanumeric characters and is suitable for identifying the counterparties involved in a transaction worldwide, thereby ensuring transparency with regard to individual transactions involving financial instruments in the context of investment services and ancillary services.
• Application of risk mitigating measures: The following risk mitigation techniques must be applied to OTC derivative contracts not cleared through a central counterparty:

The EU Regulation is directly applicable in all Member States, the Hungarian authorities are not authorised to interpret it.

In order to promote the consistent practical application of EMIR, the European Commission and the European Securities and Markets Authority (ESMA) regularly publish opinions and guidelines.

Please note that both the Magyar Nemzeti Bank, as the supervisory authority, and ESMA regularly publish information, notices and background materials to facilitate understanding of the regulations on their websites, which are worth monitoring.