Last week on the 2 June 2020, the European Securities and Markets Authority (ESMA) published its final report to the European Commission on the fair, reasonable, non-discriminatory and transparent commercial terms (FRANDT) for the provision of clearing services. This report is aimed at clearing service providers (CSP): namely clearing members, clients and indirect clients (i.e. client of a client).
The final report contains the technical advice aimed at ensuring a balance between improving a clearing client’s access to clearing services and to maintain alignment with FRANDT.
The reason for such a publication stems from the 20 May 2019, where the European Parliament and the European Council adopted a new regulation (EU) 2019/834 EMIR Refit, which amended Regulation (EU) 648/2012 EMIR. This update follows a series of amendments taken place to EMIR legislation in order to enhance and ensure relevance during a changing regulatory landscape. The update provides the requirements for CSPs to ensure the clearing services are provided under commercial terms in accordance with the aforementioned principle FRANDT.
Article 4(3a) of European Market Infrastructure Regulation (EMIR) sets out the obligation on CSPs which provide clearing services, be that directly or indirectly, to provide those services under FRANDT.
The report states that: ‘FRANDT will be specified by the Commission in a delegated act pursuant to Article 4(3a) of EMIR in accordance with Article 82 of EMIR. The delegated act is aimed to be adopted before the requirements begin to apply on the 18 July 2021 in accordance with Article 2(c) of EMIR Refit.’
Since only a small number of counterparties are clearing members of a Central Counterparty (CCP), the majority of counterparties must become clients of clearing members or establish other indirect clearing arrangements to gain access to a CCP’s central clearing services. Any barriers to central clearing access could cause market participants to move towards bilateral non-cleared OTC derivatives or cease transacting derivatives which would contradict the significant efforts made to ensure a safe and efficient cleared market ecosystem and subsequently increase financial market risks.
The implementation of FRANDT is part of a much wider effort to ensure that access to central clearing facilities are openly accessible to counterparties.
Further information on the ESMA technical advice, FRANDT and other key initiatives are highlighted within the ESMA report.s
For more information: