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. Some counterparties will also have to clear trades by the relevant start date when these trades have been executed or novated after a certain date but before the date of application of the clearing obligation – so-called “frontloading”. More detail on each of these is set out below.
Important information for Non-Financial Counterparties (NFCs)
The EMIR Clearing obligation does not apply to ‘Non-Financial Counterparties below the threshold’ or ‘NFC-‘. An entity is an NFC- as long as their rolling average position over 30 working days doesn’t exceed the EMIR thresholds in any derivative classes. For more information on counterparties and the classification thresholds as defined by EMIR go to the HSBC EMIR Overview page.
EMIR clearing requirements
The frontloading requirement
Frontloading is only applicable to trades executed by Category 1 and Category 2 financial counterparties. The frontloading requirement is the obligation to clear in-scope OTC derivative contracts executed or novated after a certain date but before the date of application of the clearing obligation. At the latest, when bilaterally executed during the frontloading period, such trades must be submitted for clearing on the relevant clearing obligation start date.
In scope Products
To discover which products are in scope of 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 RTS for full details.
- All products listed as in-scope are dependent on each particular RTS and therefore subject to change.
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 RTS, 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 is 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 is 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 not included in Category 1, 2 or 3.
How to disclose your EMIR clearing category?
HSBC Bank plc requests all clients to confirm their clearing category by one of the two options detailed below.
Option 1: ISDA Amend
ISDA Amend is a joint service provided by Markit and the International Swaps and Derivatives Association, Inc. With ISDA Amend, swap dealers and clients can classify their trading entities as well as amend and share multiple ISDA master agreements using a single online tool. This helps to ensure clients are compliant with new requirements related to EMIR. Please visit Markit's dedicated webpage to access and sign up to ISDA Amend.
If you have already completed ISDA Amend in relation to the Title VII of the Dodd Frank Act you will still be required to register for EMIR Clearing. Although there are similar obligations under Title VII of the Dodd Frank Act and EMIR Clearing, they are separate regulatory regimes requiring separate documentation.
Option 2: ISDA Categorisation Letter
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.
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Last updated: 22 February 2018