ESMA Documentation & FAQs
Entering into derivative transactions identifies you as a 'counterparty'.
EMIR introduces two sets of counterparties:
• Financial Counterparties (FC) include banks, investment managers, insurance companies or brokers
• Non-Financial Counterparties (NFC) include all entities that are not Financial Counterparties
EMIR identifies two sub-categories of Non-Financial Counterparties (NFC).
Depending on the volume of derivatives a counterparty enters into, ESMA (European Securities and Markets Authority) has defined a set of clearing thresholds for each class of derivative and NFCs are classified relative to these thresholds.
Important: calculation is based on gross notional values of positions, excluding cash products, spot foreign Exchange (FX ) and that are 'objectively measurable as reducing risks directly related to its commercial activity or treasury financing activity or that of its group ('hedging derivatives').
Clearing thresholds by class:
- Credit: €1bn
- Equity: €1bn
- Interest Rates: €3bn
- Foreign Exchange: €3bn
- Commodities and others: €3bn
The regulatory obligations imposed on NFCs that are subject to EMIR are different depending upon the NFC sub-categorisation.
- You are classified as a 'Non-Financial Counterparty above the threshold' or NFC+, when your rolling average position over 30 working days exceeds the threshold in any non-hedging derivative class. You must immediately notify ESMA and your competent authority. As a result you will have to apply NFC+ regulations to all your derivatives contracts regardless of their class.
- You are classified as a 'Non-Financial Counterparty below the threshold' or NFC-, as long as your rolling average position over 30 working days doesn't exceed the thresholds in any derivative classes