EMIR sets rules for the central clearing of certain OTC derivatives transactions by a central counterparty (CCP). In the derivatives transaction the CCP becomes the counterparty of the buyer as well as the seller.

The central clearing of OTC derivatives transactions is aimed at contributing to the stability of the financial system. The intervention of the CCP has to avoid that the bankruptcy of one entity leads to the bankruptcy of another entity due to the risks they run on each other.

LEIs & clearing categories of ABN AMRO
  LEI Clearing category
ABN AMRO Clearing Bank N.V. G8ZTNESVNKW4NN761W05 1

Most frequently asked questions about central clearing obligation

The central clearing obligation does not apply to every class of OTC derivatives. The central clearing obligation applies to the most common forward rate agreements and interest rate swaps, overnight index swaps, and in the near future also some index-based credit default swaps.

The ESMA (European Securities and Markets Authority) decides which classes of derivatives have to be cleared centrally. ESMA has an updated list of in-scope OTC derivatives on its website.

The central clearing obligation applies to FCs and NFCs+, and not to NFCs. The central clearing obligation also applies to parties that are established outside of the EEA, in case the central obligation would have applied to them if they had been established in the EEA.

EMIR does not only divide parties in FCs, NFCs and NFCs+. EMIR further divides parties into Categories 1 through 4. See how the parties are divided.

EMIR categories
Category 1 Clearing Members (such as ABN AMRO Clearing Bank N.V.)
Category 2 FCs that on a group level have a volume of at least € 8 billion of not centrally cleared derivates (such as ABN AMRO Bank N.V.)
Category 3 Other FCs
Category 4 NFCs+ that do not belong to any of the other categories

The clearing threshold for the portfolio(s) must be calculated per category of derivatives. The European supervisory authority (ESMA) has determined the following thresholds:

Credit derivatives €1 billion in gross nominal value
Equity derivatives €1 billion in gross nominal value
Interest rate derivatives €3 billion in gross nominal value
Foreign exchange derivatives €3 billion in gross nominal value
Commodity derivatives €3 billion in gross nominal value

Note: This applies to all derivatives transactions that your company has concluded. This means not only the derivatives contracts that you entered into with ABN AMRO, but also the transactions that you entered into with other parties.

You can use the following formula to determine if your company has exceeded any of the clearing thresholds:

Nominal value of the outstanding derivatives portfolio (per derivatives category) -/- nominal value of the derivatives contracts used for hedging (in the same category)

The outcome must be compared to the clearing threshold.

The central clearing obligation is introduced in phases. This means that different effective dates apply to different categories of parties.

For Category 1 and Category 2 parties a so-called frontloading period applies, as is illustrated by the scheme below. In short, frontloading means that the central clearing obligation already applies on transactions that have been entered into during such a frontloading period.

This scheme illustrates the various effective dates.

As of when does the central clearing obligation apply?
Party Start frontloading period  Effective date clearing obligation 
Category 1 21 February 2016 21 June 2016
Category 2 21 May 2016 21 December 2016
Category 3 not applicable 21 June 2017
Category 4 not applicable 21 December 2018

Please note: a transaction has to be cleared centrally no sooner than when the obligation has entered into force for both parties. For example: when in April 2016 two Category 1 parties enter into an OTC derivatives transaction, then this transaction has to be cleared centrally. If, on the other hand, this transaction is entered into in April 2016 between a Category 1 party and a Category 2 party, then this is not the case, because the obligation does not apply on the Category 2 party yet.

ABN AMRO sends its counterparties that are classified as an FC or NFC+ an ISDA/FIA Europe Cleared Derivatives Execution Agreement. In this agreement a number of procedures is described. For example what has to happen when a transaction that has to be centrally cleared cannot be centrally cleared (details on how to unwind the transaction etc).