Introduction to the EMIR Clearing requirements
Under the European Markets Infrastructure Regulation (EMIR), financial counterparties and certain non-financial counterparties with large derivatives exposures have to clear derivatives contracts subject to the clearing obligation when traded Over-the-Counter (OTC) with effect from the relevant clearing start date.
Important information for Non-Financial Counterparties (NFCs)
The EMIR Clearing obligation does not apply to 'Non-Financial Counterparties below the clearing thresholds' or 'NFC-'.
Whereas NFC+ were previously required to clear derivative transactions across all asset classes when they exceeded any of the clearing thresholds, EMIR REFIT requires NFC+ to only clear new and novated derivatives subject to the EMIR clearing obligation in the asset class where it exceeds the clearing threshold.
Small Financial Counterparties (FC-) are not subject to the EMIR clearing obligations. They remain however subject to all other EMIR obligations that apply to Financial Counterparties, such as margin requirements for uncleared derivatives, risk mitigation techniques and reporting.
Large Financial Counterparties (FC+) must clear new and novated derivative contracts subject to the clearing obligation across all asset classes.
For more information on counterparties and the classification thresholds as defined by EMIR go to the HSBC EMIR Overview page.
EMIR clearing requirements
In scope Products
To access the full list of products that are in scope of the EMIR Clearing rules, please download ESMA's Public Register for the Clearing Obligation under EMIR document.
- Additional characteristics must be present in order for a trade to be subject to the clearing obligation. Please refer to Annex I of the relevant Regulatory Technical Standards (RTS) for full details.
- All products listed as in-scope are dependent on each particular RTS and therefore subject to change.
When does the EMIR clearing obligation begin?
As detailed in the table below, the clearing obligation start date is different depending not only on when the relevant classes of OTC derivatives are declared subject to the clearing obligation, but also depending on the counterparty classification.
In any transaction between counterparties in different categories, the clearing obligation applies on the later date (e.g. a trade between Category 1 and Category 3 must be cleared within the deadline applicable to Category 3 counterparties).
|Category||Clearing obligation start date for Interest Rates Swaps denominated in EUR, GBP, USD and JPY||Clearing obligation start date for Interest Rates Swaps denominated in NOK, PLN and SEK and Credit Default Swaps|
In force since 21 June 2016
In force since 9 February 2017
In force since 21 December 2016
In force since 9 August 2017
18 October 2019
18 October 2019
In force since 21 December 2018
18 October 2019
EMIR clearing categories
You are a category 1 counterparty when you are a clearing member of at least one central counterparty (CCP) which is authorised or recognised under EMIR to clear one or more classes of derivatives which are subject to the clearing obligation, provided your clearing membership allows you to clear one or more of those classes of derivatives.
You are a category 2 counterparty when you are:
- a Financial Counterparty not included in Category 1 and belonging to a group whose aggregate month-end average notional amount of uncleared derivatives was above EUR 8 billion for the 3-month period comprised between 1 January 2016 and 31 March 2016; or
- an Alternative Investment Fund (AIF) that is an NFC+, not included in Category 1 and belonging to a group whose aggregate month-end average notional amount of uncleared derivatives was above EUR 8 billion for the 3-month period comprised between 1 January 2016 and 31 March 2016.
You are a category 3 counterparty when you are:
- a Financial Counterparty not included in Category 1 or 2; or
- an Alternative Investment Fund (AIF) that is an NFC+, not included in Category 1 or 2.
You are a category 4 counterparty when you are a Non-Financial Counterparty above the EMIR Clearing Threshold or NFC+ not included in Category 1, 2 or 3.
Please note the following HSBC entities categories for the purpose of clearing in-scope interest rate derivatives under EMIR:
- HSBC Bank plc (LEI: MP6I5ZYZBEU3UXPYFY54) is a category 1 counterparty.
- HSBC UK Bank plc (LEI: 21380081EP12LC86CB82) is a category 1 counterparty.
- HSBC Bank USA, National Association (LEI: 1IE8VN30JCEQV1H4R804) is a category 1 counterparty.
- The Hongkong and Shanghai Banking Corporation Limited (LEI: 2HI3YI5320L3RW6NJ957) is a category 1 counterparty.
- HSBC France S.A. (LEI: F0HUI1NY1AZMJMD8LP67) is a category 1 counterparty.
- Trinkaus & Burkhardt AG (LEI: JUNT405OW8OY5GN4DX16) is a category 2 counterparty.
Clearing obligations in the EU and outside the EU
What is the EMIR Clearing obligation when at least one counterparty is established in the EU?
Trades in contracts which have been declared subject to the clearing obligation must be cleared when they involve Financial Counterparties or Non-Financial Counterparties above the threshold (NFC+) where at least one counterparty is established in the EU.
For more information on counterparties as defined by EMIR go to the HSBC EMIR Overview page.
What is the EMIR Clearing obligation when neither counterparty is established in the EU?
Trades in contracts which have been declared subject to the clearing obligation must be cleared, even if neither counterparty is in the EU, in the following cases:
- Two non-EU (third country) entities that would be subject to the clearing obligation if they were established in the EU, where they are both trading through EU branches;
- Two non-EU (third country) entities that would be subject to the clearing obligation if they were established in the EU, where one of them has a qualifying guarantee from an EU financial counterparty covering its OTC derivatives activities.
What if you are already subject to the clearing rules in the US?
The EMIR clearing requirements overlap significantly with clearing rules established by the United States Commodities and Futures Trading Commission under Title VII of the Dodd Frank Act. In the event that we already clear certain trades with you in accordance with those rules, we will continue to work closely with you in the coming months to agree how to accommodate the similarities and differences between the two sets of rules.
For more information on counterparties as defined by EMIR go to the HSBC EMIR Overview page
Clearing account segregation
Where HSBC Bank plc (HSBC) provides derivatives clearing services as a clearing member of a central counterparty (CCP) which is authorised or recognised under EMIR, we will:
- Disclose the levels of client protection CCPs offer in respect of each account type, the consequent degree of segregation associated with each account type and its associated costs. Please review the HSBC EMIR Disclosure.
- Offer you a choice between omnibus client segregation and individual client segregation, as described in the above HSBC Risk Disclosure Document.
Please provide your choice of account by completing the Account Election Form and returning it to firstname.lastname@example.org. Absent and pending your election, we will continue to use your existing account structure or select an omnibus account for your business.
- Disclose the costs and fees HSBC charges for its derivatives clearing services, together with details of any discounts and rebates available in respect of those costs and fees and the circumstances in which such may apply.
Please see the HSBC Derivatives Clearing Services Fees Disclosure document.
Where The Hongkong and Shanghai Banking Corporation Limited (“HBAP”) provides derivatives clearing services as a clearing member of LCH Ltd. (‘LCH’) which is a CCP authorised or recognised under EMIR, we will:
- Disclose the levels of client protection LCH offers in respect of each account type, the consequent degree of segregation associated with each account type and its associated costs. Please review the HBAP EMIR Risk Disclosure for existing clients (if you have been on-boarded before 2021), or the HBAP EMIR Risk Disclosure for new clients (if you have been on-boarded from 1 January 2021 onwards).
- Offer you a choice between omnibus client segregation and individual client segregation, as described in the above HBAP EMIR Risk Disclosures. Please provide your choice of account by completing the Existing Client Acknowledgement Form (if you have been on-boarded before 2021) or the New Client Acknowledgement Form (if you have been on-boarded from 1 January 2021 onwards), and returning it to email@example.com.
- Disclose the costs and fees HSBC charges for its derivatives clearing services, together with details of any discounts and rebates available in respect of those costs and fees and the circumstances in which such may apply. Please see the HBAP Derivatives Clearing Services Fees Disclosure document.
EMIR Refit introduced an obligation on clearing service providers to provide those services under fair, reasonable, non-discriminatory and transparent (‘FRANDT’) commercial terms.
This led to a new set of requirements defined by the European Securities and Markets Authority (ESMA), the EU’s securities markets regulator’s, in its report with technical advice to the European Commission (EC) on the FRANDT commercial terms for the provision of clearing services.
The FRANDT framework aims to help counterparties to get access to clearing services, especially those that have a limited volume of activity in the OTC derivatives market and face difficulties in accessing central clearing. Clearing service providers are to be considered to be FRANDT based on the following:
- The on-boarding process must be transparent
- A form for a request for proposal should be made available
- Any proposal made by the clearing service provider must address a number of key items laid out in the Annex to the regulation
- Commercial terms should be laid down in writing, be clear and complete, and cover all the essential terms and conditions
- Fees, prices and discounts are transparent and based on objective criteria
- Risk is assessed in a fair and non-discriminatory way
- Their approach to refusal of clearing orders, suspension, liquidation or close out of client positions and notice periods
The requirements that clearing service providers must meet to be considered to be FRANDT are covered in detail in the Annex to the Commission Delegated Regulation (EU) 2021/1456.
As part of the FRANDT requirements, HSBC Bank Plc has created an RFP template based on Industry discussions with the FIA and ISDA. Prospective clients can either use this RFP template or any other form of RFP.
Clearing account onboarding
Client On-Boarding is managed within the Derivatives Clearing Services (DCS) business. A dedicated onboarding manager will be assigned and is responsible for the delivery of the onboarding process. As the senior project lead, the onboarding manager will co-ordinate resources across our support functions, as well as acting as your single point of contact for issues and escalation to your dedicated sales coverage.
The onboarding manager will drive with the sales coverage the execution of the client clearing agreement and termsheet. Overseen by the onboarding manager, our in-business and operations client integration teams will perform the following actions in each area:
- Legal: Assist with the clearing agreement negotiation with our legal and in-business risk departments
- Risk and Credit: Perform portfolio simulation and confirm limit requirement
- Operating model: Document the plan, clearly defining milestones, roles and responsibilities.
- Data: Issue an onboarding questionnaire to gather the data necessary for our internal processing systems, our web application and at the relevant CCPs.
- User testing and training: Execute UAT, system training and go-live migration.
The onboarding manager will have oversight of the credit application process for the clearing limits, working with our in-business risk team and your Global Relationship Banker to ensure that requirements are understood and approvals are in place. Client feedback is central to the development of our business. The onboarding manager is responsible for feeding your requirements into our product development process for analysis and prioritization, as well as keeping you informed of forthcoming service enhancements.
HSBC can make available internal test environments in order to provide a full client simulation user testing cycle. Specifically with respect to client clearing, HSBC’s own internal test environments have connectivity to external trade affirmation and CCP test platforms to mirror external processing. The onboarding manager can assist clients in the definition of user test cases and the development of specific test packs.
The preparation period will include legal discussions to complete the initial on-boarding process. The onboarding process typically takes around 12 weeks to complete. This timeframe depends on the counterparty’s turnaround time of the documentation. In our experience, the legal documentation is the component of the on-boarding process which requires the longest timeframe for completion.
Indirect Clearing RTS
Where The Hongkong and Shanghai Banking Corporation Limited (“HBAP”) provides indirect clearing services that us clearing derivatives through a clearing broker on an EU central counterparty (CCP) we are required to make certain disclosures as required under EMIR Indirect Clearing RTS.
Please see the FIA indirect clearing disclosure – Hong Kong