This marks an important milestone in implementing the EU’s post-financial crisis’ derivatives regulation – the European Market Infrastructure Regulation (EMIR) – and follows the G20 commitment to clear all standardised OTC derivative contracts, where appropriate, through central counterparties (CCPs).

The incoming clearing obligation will cover the following classes of OTC interest rate derivatives denominated in the G4 currencies (EUR, GBP, JPY and USD):

• fixed-to-float interest rate swaps (also known as plain vanilla);

• float-to-float swaps (also known as basis swaps);

• forward rate agreements; and

• overnight index swaps.

With the overarching goal of reducing systemic risk in the financial system, the clearing obligation requires EU firms to clear certain OTC derivatives through CCPs under EMIR. ESMA has to assess whether the clearing obligation should apply after a national competent authority has authorised a CCP to clear a class of OTC derivatives. ESMA assessed interest-rate OTC derivatives first as they constitute the largest segment of all OTC derivative products. In addition, it is aligned with the clearing mandates in other jurisdictions.