INTERNATIONAL: ISDA Publishes Updated EMIR Classification Letter

Wednesday April 13 2016

On 13^th April 2016, the International Swaps and Derivatives Association (ISDA) published an updated classification letter that will enable counterparties to notify each other of their status for clearing and other regulatory requirements under the European Market Infrastructure Regulation (EMIR). The updated letter covers the clearing obligation for certain interest rate derivatives classes denominated in European Economic Area (EEA) currencies and certain credit default swap (CDS) index classes.

Under EMIR, the application of the clearing obligation depends on the categorization of each counterparty under a specified taxonomy. This categorization will determine whether the counterparty is required to clear and, if so, the time frame for compliance. The ISDA EMIR Classification Letter allows market participants to bilaterally communicate their status to their counterparties by answering a series of questions.

The European Commission (EC) has also endorsed final draft RTS that require certain classes of CDS index to be cleared. In addition, the European Securities and Markets Authority has published a final draft RTS proposing a clearing obligation for interest rate derivatives denominated in certain EEA currencies.

The updated letter makes several substantive amendments, including:

• Aligning the definition of ‘Category 1 entity’ to the one used in the final, published version of the G-4 interest rate products RTS; and
• Providing the ability for entities to make classifications in respect of the draft RTS for EEA rates and the RTS on CDS index classes.

The letter may be further expanded in the future to cover other product classes that may become subject to the clearing obligation.

Click on the link above for further details.