ESMA final draft RTS on post-trade risk reduction services under EMIR 3

The European Securities and Markets Authority (ESMA) has published a final report containing draft regulatory technical standards (RTS) specifying the circumstances in which transactions resulting from post-trade risk reduction (PTRR) services will be exempt from the clearing obligation under the revised European Market Infrastructure Regulation (EMIR 3). The draft RTS: (i) specify the requirements regarding PTRR services and their resulting transactions which are eligible for the clearing obligation exemption, including compression, portfolio rebalancing and basis risk optimisation; (ii) set out the common conditions on market risk neutrality and risk reduction; (iii) further define the obligations that PTRR service providers should meet; and (iv) detail the requirements on transparency, algorithms, execution, controls, record-keeping and monitoring of the exemption. ESMA states the aim is to facilitate the use of PTRR services and ensure that the exemption is used under the conditions laid down in EMIR 3 and does not lead to the misuse of the clearing obligation.

As feedback to the February consultation was broadly supportive, ESMA has made only limited adjustments to the final draft RTS. The final draft RTS were submitted to the European Commission (EC) on 9 October for endorsement. The EC has three months to decide whether to endorse the proposed RTS.

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