The EU’s financial markets watchdog has published new guidance on how some firms should meet an “active account” rule for clearing derivatives trades.
The supervisory briefing sets out what ESMA expects from “counterparties” — firms such as banks and investment companies that trade with each other in financial markets — when they comply with and report on the representativeness obligation linked to the active account requirement (AAR), the European Securities and Markets Authority said in its latest statement on Friday.
The AAR representativeness obligation requires relevant counterparties to clear a number of trades through their active accounts held at EU central counterparties (CCPs) — organisations that sit between buyers and sellers to reduce the risk of a trade failing.
Those trades must be in the most relevant subcategories of derivatives and reflect the activity the same counterparties currently clear at so-called Tier 2 CCPs.
What the briefing covers
The document explains how counterparties should identify the most relevant subcategories for the representativeness obligation, how they should report trades, and includes an example of how reporting could be done, ESMA said.
Firms covered by the AAR representativeness obligation are expected to follow the guidance in the briefing to meet their regulatory obligations, ESMA added.
