Chapter 10: European market infrastructure regulation (EMIR)

Question 1

What are the aims of EMIR?

Answer 1

• Increase transparency in over-the-counter (OTC) derivatives
• Mitigate credit risk
• Reduce operational risk

Question 2

What are the capital requirements that a Central Counterparty (CCP) must satisfy?

Answer 2

A CCP must have at least 7.5 million euros in capital to be authorized.

Question 3

From which requirements are CPPs exempted?

Answer 3

Due to the nature of their business, CPPs can easily exceed the large exposure limit and therefore are explicitly exempted from the large exposure requirements.

Question 4

How often should a CCP calculate its liquidity requirement?

Answer 4

Daily

Question 5

What should CCPs disclose to the public?

Answer 5

• The prices and fees for each of its services individually including discounts and rebates.
• The technical requirements relating to the communication protocols of content and message formats used.

Question 6

What should CCPs disclose to CySEC?

Answer 6

Costs and revenues.

Question 7

When does CySEC not disclose the breaches by clearing members?

Answer 7

When the disclosure may:
• Constitute a threat to financial stability
• Constitute a threat to market confidence
• Seriously jeopardize the financial markets, or
• Cause disproportionate damage to parties involved.

Question 8

From where may CCPs derive liquidity?

Answer 8

Liquidity may derive from access to central bank liquidity creditworthy and reliable commercial bank liquidity, or both.

Question 9

How does a CCP measure the potential liquidity that it needs?

Answer 9

By taking into account the liquidity risk generated by the default of the two clearing members to whom they have the largest exposures.

Question 10

What is the maximum percentage of the credit lines needed by the CCP can a clearing member, a parent undertaking or a subsidiary of that clearing member provide?

Answer 10

25%

Question 11

What should the capital of a CCP cover in order to be sufficient?

Answer 11

• Ensure an orderly wind drawn or restricting of activities over an appropriate time span, and
• Provide an adequate protection of the CCP against legal risk.

Question 12

Do financial counterparties have the requirement for risk management procedures?

Answer 12

Yes but only after the clearing threshold is exceeded.