ESMA Publishes Draft Regulatory Technical Standards on Clearing Thresholds under EMIR 3.0

ESMA has taken the view that the new uncleared transaction thresholds should attempt to capture a similar proportion of counterparties and notional amounts in the relevant markets as will be captured by the aggregate cleared and uncleared transaction thresholds. With that in mind, ESMA has proposed the thresholds set out in the box above.

It should be noted that the thresholds for uncleared interest rate derivatives, credit derivatives and equity derivatives are proposed to be lower than the thresholds currently applicable – 1.8bn EUR for interest rates versus 3bn EUR under current rules, and 0.7bn EUR for each of credit and equity derivatives versus 1bn EUR under current rules. This may mean that some counterparties who were trading transactions in these classes on an uncleared basis could now find themselves exceeding the clearing thresholds where previously they did not.

On the other hand, EMIR 3.0 will change the calculation methodology applicable to NFCs.  Currently, an NFC conducting its clearing threshold calculations must include its own cleared and uncleared transactions along with those of other NFCs in its group. Under EMIR 3.0 an NFC will only need to include its own transactions and not those of other NFCs in its group. As is currently the case, the NFC will still be able to exclude transactions that reduce risk. The effect of these combined changes to the clearing thresholds and NFC calculation methodology will be specific to the counterparty concerned.

While the uncleared thresholds for equity, FX and commodity derivatives will be relevant to whether an FC will be required to clear its OTC derivative contracts – because breach of one threshold will mean the clearing obligation is triggered for all clearing classes for an FC – they are less relevant to NFCs, which are only required to clear transactions in the clearing class for which the threshold has been breached. Because the clearing obligation itself currently only applies to interest rate and credit derivatives, a breach of (for example) the uncleared equity derivatives threshold does not trigger any clearing obligation for NFCs. Breach of the threshold remains however relevant to determining whether the NFC will become an NFC+ and consequently within scope of enhanced risk mitigation requirements under EMIR – in particular the obligation to exchange variation margin.

EMIR 3.0 retains a set of thresholds for FCs against which the FC must measure the aggregate of cleared and uncleared transactions of the FC and all entities in its group (i.e. all FCs and NFCs). These thresholds will no longer apply to NFCs, who will only need to consider the uncleared thresholds.

ESMA's consultation confirms that these aggregated thresholds will only apply to interest rate and credit derivatives (see the summary box above). The categories of equity, FX, and commodity and emission allowance derivatives are not subject to the clearing obligation and, on that basis, ESMA has not proposed aggregate thresholds in respect of those classes.

Transactions within the commodity and emission allowance derivatives class will only be counted toward the uncleared clearing threshold set, and will no longer be relevant to the aggregated cleared and uncleared threshold set. ESMA has proposed the following two changes with respect to commodity and emission allowance derivatives:

• the notional amount threshold is reduced from 4bn EUR to 3bn EUR; and
  
  
• the scope of transactions within this class would be narrowed.

With regard to scope, the level one text in EMIR 3.0 suggested that ESMA consider applying more granular clearing thresholds within this asset class, for example by distinguishing the type of commodity or characteristics of the contract such as ESG criteria or crypto-asset features. ESMA has decided not to create more granular classes at this stage, because this would both increase operational complexity and reduce flexibility in risk management, while there is insufficient data available to propose separate clearing thresholds for each sub-class.

Instead, ESMA considers that the scope of transactions within this asset class should be aligned with the EMIR Refit Reporting Framework, which uses the asset class "commodity and emission allowances derivatives", to reflect the importance of this asset class in its own right and to reduce the operational burden on market participants caused by the inclusion of "other" derivatives. While it is possible that ESMA will review this and add a separate class in future to include transactions in crypto-assets it has again taken the view that there is currently insufficient data to define this clearing class.

The combined effect of the changes to the clearing thresholds and the relevant calculation mechanics that will be implemented by EMIR 3.0 is summarised here:

EMIR does not require NFCs to count toward the relevant threshold any OTC derivative contracts that are "objectively measurable as reducing risks directly relating to the commercial or treasury financing activity of the NFC or its group". This is known in the market as the hedging exemption.

The level one text of EMIR 3.0 mandates ESMA to develop RTS on the criteria for determining which contracts are risk-reducing. ESMA has, however, taken the view that the scope of the exemption set out in existing delegated regulations is sufficiently clear and that no change is needed.

ESMA has, however, asked for input from stakeholders as to whether virtual power purchase agreements should qualify for the hedging exemption, due to their importance in creating price stability in energy costs.

EMIR 3.0 requires that ESMA review the clearing thresholds every two years, or when required under mechanisms established by ESMA following significant price fluctuations in the underlying class of OTC derivatives or a significant increase of financial stability risks. Following such a review, ESMA must consider whether the classes of derivatives subject to the clearing obligation remain appropriate or whether new classes should be added.

In this consultation, ESMA proposes that the review mechanisms should not be crisis-management measures (as was the case with the amendment to the threshold for commodity derivatives following the start of the war in Ukraine) but instead should give counterparties some stability in the thresholds and time to react to any change. In triggering such a review, ESMA will consider indicators such as fluctuation in the price of the underlying of the contract, the inflation rate, global financial conditions and geopolitical uncertainties.

The consultation closes on 16 June 2025. ESMA is required to submit the RTS to the European Commission by 25 December 2025, and the new thresholds will take effect on entry into force of these RTS.

If you would like to discuss how the new proposed thresholds might apply to your business, please get in touch.