EU EMIR: ESMA consults on new clearing thresholds

1. KEY POINTS

On 8 April 2025, ESMA launched its second consultation under EMIR 3, seeking industry feedback on:

• proposed clearing thresholds for financial counterparties and non-financial counterparties calculating their uncleared positions under the new calculation methodologies;
• proposed clearing thresholds for financial counterparties calculating their aggregated cleared and uncleared positions under the new calculation methodologies;
• the triggers that should prompt a review of the thresholds; and
• whether the parameters of the current hedging exemption need to be adjusted.

The new clearing thresholds will ultimately be used by firms to determine whether they are in scope of the EU EMIR clearing obligation (and also, by extension, the active account requirement), but they will only start to apply when technical standards are in force. Until then, firms should continue to use the existing thresholds for categorisation purposes.

Draft technical standards are annexed to the consultation. ESMA does not need to submit draft standards to the European Commission until December 2025, but this consultation and the draft standards give a good indication of the direction of travel.

The table below compares the pre- and post-EMIR 3 clearing thresholds, based on ESMA's proposals.

2. BACKGROUND

EMIR 3 introduced fundamental changes to the way in which counterparties will in future calculate their derivative positions for assessment against the clearing thresholds for categorisation purposes. It also mandates ESMA to re-visit the clearing thresholds and the parameters of the NFC hedging exemption to check they are still appropriate.

The changes to the calculation methodologies will only take effect when new clearing thresholds have been established by supplemental technical standards. It is these technical standards on which ESMA is now consulting.

We describe the pre-EMIR 3 and proposed post-EMIR 3 positions below.

3. PRE-EMIR 3 CLEARING THRESHOLDS

EU EMIR categorises OTC derivative counterparties as either financial counterparties (FCs), which include regulated entities in the financial services, funds and insurance sectors, or non-financial counterparties (NFCs), which are all other in-scope counterparties except CCPs.

FCs are further divided into those whose group-wide annual aggregate month-end average OTC positions exceed certain thresholds (FC+s) and those which do not (FC-s). NFCs are divided into those whose group-wide NFC non-hedging OTC positions exceed the thresholds (NFC+s) and those which do not (NFC-s).

The categorisation combination of a counterparty pair determines whether certain EU EMIR obligations, including the clearing obligation, apply to a particular transaction.

The clearing thresholds, which are set according to asset class, were implemented by EU Regulation 149/2013 in 2013 and have changed very little since then¹. Currently, calculating entities, whether FC or NFC, need to include both cleared and uncleared transactions in their calculations.

A calculating entity can elect not to perform the calculation but it is then automatically categorised as a "+" entity.

The current thresholds are set out below.

As mentioned above, when assessing their positions against the thresholds, NFCs do not need to count hedging transactions. The parameters for determining whether a particular transaction constitutes a "hedging transaction" are also set out in Regulation 149/2013, which provides that an OTC derivative contract is "objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of the non-financial counterparty or of that group" (i.e. a hedging transaction), when, by itself or in combination with other derivative contracts, directly or through closely correlated instruments, it:

• covers the risks arising from the potential change in the value of assets, services, inputs, products, commodities or liabilities that the non-financial counterparty or its group owns, produces, manufactures, processes, provides, purchases, merchandises, leases, sells or incurs or reasonably anticipates owning, producing, manufacturing, processing, providing, purchasing, merchandising, leasing, selling or incurring in the normal course of its business;
• covers the risks arising from the potential indirect impact on the value of assets, services, inputs, products, commodities or liabilities referred to above, resulting from fluctuation of interest rates, inflation rates, foreign exchange rates or credit risk; or
• qualifies as a hedging contract pursuant to International Financial Reporting Standards (IFRS) adopted in accordance with Article 3 of Regulation (EC) No 1606/2002 of the European Parliament and of the Council.

ESMA's review of the hedging exemption is discussed at Hedging Exemption below.

4. NEW CALCULATION METHODOLOGIES AND PROPOSED POST-EMIR 3 CLEARING THRESHOLDS

EMIR 3 (which is discussed in more detail here) introduced new calculation methodologies for FCs and NFCs determining whether they fall into the "+" or "-" categories described above.

The new methodologies are outlined in the EMIR 3 text, but before they can take effect they need to be supplemented with technical standards specifying new clearing thresholds. The new methodologies and the proposed clearing thresholds are explained below.

In the consultation, ESMA provides a tabular summary of the main clearing threshold related changes brought in by EMIR 3. The table is replicated at Annex A.

New NFC calculation methodology

Once the technical standards are in force, when assessing their positions against the clearing thresholds, NFCs:

• will only need to count transactions that are not cleared through an EU CCP or a recognised third-country CCP; and
• will no longer need to take into account transactions entered into by other NFCs in their group and will be able to base their calculations on uncleared transactions entered into at entity level (although the hedging exemption will still cover transactions entered into by the calculating NFC to hedge the risk of another group entity).

If the result of the calculation exceeds one of the relevant thresholds, as shown in the table below, the NFC will be categorised as an NFC+.

New FC calculation methodology

When assessing their positions against the clearing thresholds, FCs will need to perform two calculations:

1. one to calculate their uncleared positions, counting all transactions that are not cleared through an EU CCP or a recognised third-country CCP; and
2. another to separately calculate their aggregate positions, counting their cleared and uncleared²  positions.

FCs will still need to include all group transactions and will not benefit from the hedging exemption.

If the result of either 1 or 2 exceeds one of the relevant thresholds, as shown in the table below, the FC will be categorised as an FC+.

When calculating the aggregate position under 2 above, ESMA proposes that FCs should only include transactions that are in an asset class that is subject to mandatory clearing. The only asset classes that are currently subject to mandatory clearing are credit derivatives and interest rate derivatives, so ESMA has only proposed thresholds for these. The proposed thresholds are the same as the current thresholds (i.e. EUR 1 billion for credit derivatives and EUR 3 billion for interest rate derivatives).

The rationale for the methodology change to is to recognise the benefits of clearing by putting more emphasis on the level of uncleared transactions, given that these carry more risk. However, ESMA wants to avoid de-scoping counterparties with large cleared portfolios (including potentially significant volumes cleared through systemically important third-country CCPs) simply because they have relatively few uncleared transactions - hence the recommendation that FCs should also calculate aggregate positions.

The option will still be available for an FC or NFC to elect not to perform the calculation, but any such entity would automatically be categorised as an FC+ or NFC+, as is currently the case.

5. REGULAR REVIEW

ESMA is required to review the thresholds for both uncleared and aggregated positions at least every two years, or earlier if certain trigger events occur. The consultation proposes the following trigger events, and asks whether market participants agree with their assessment:

• a significant change in the fluctuations of prices in the underlying of OTC credit derivatives, OTC equity derivatives, OTC interest rate derivatives, OTC foreign exchange derivatives or OTC commodity derivatives and OTC emission allowance derivatives; and
• a significant change in the evolution of the inflation rate, of the global financial conditions, or of the geopolitical and economic policy uncertainties.

ESMA also suggests in the consultation that a sixth asset class may be added for categorisation purposes in the future, with its own separate threshold, but that it would be premature to consider this at this stage as data is limited. When more post-Refit 2 reported data is available, ESMA will have a better view of where additional risk might lie. Similarly, thresholds for crypto derivatives may also be introduced when more data is available.

6. HEDGING EXEMPTION

As discussed above, the hedging exemption remains as is for now and is still available to calculating NFCs on a group-wide basis. To help market understanding of the exemption, ESMA provides four (non-exhaustive) case study examples, which are replicated at Annex B.

In ESMA's opinion, it is already clear which contracts can be considered "risk reducing transactions" and qualify for the hedging exemption. However, in response to market feedback (particularly in relation to financial or virtual power purchase agreements (PPAs), in respect of which there is current market concern if they cannot be considered as risk reducing for the investor or buyer), ESMA asks in the consultation whether (i) market participants think that the position needs to be clarified and (ii) ESMA should consider the treatment of any specific product types.

We will follow developments and publish updates as this EMIR workstream progresses.

Annex A

Annex B

Case A

An NFC (NFC A) has a 3 billion EUR position in interest rate derivatives not for hedging and a 2 billion EUR position in interest rate derivatives classified as hedging.

Total NFC position in interest rate derivatives for the purpose of the clearing thresholds would be 3 billion EUR.

Case B

An NFC (NFC A) has a 4 billion EUR position in interest rate derivatives not for hedging and a 2 billion EUR position in interest rate derivatives classified as hedging on behalf of another NFC (NFC B) within the same group (with an intragroup trade between A and B for example).

Total NFC A position in interest rate derivatives for the purpose of the clearing thresholds would be 4 billion EUR, total NFC B position in interest rate derivatives for the purpose of the clearing thresholds would be 0.

Case B-bis

An NFC (NFC A) has a 4 billion EUR position in interest rate derivatives not for hedging and another NFC (NFC B) within the same group has a 2 billion EUR position in interest rate derivatives classified as hedging (with no link between A and B regarding that trade/position).

Total NFC A position in interest rate derivatives for the purpose of the clearing thresholds would also be 4 billion EUR, total NFC B position in interest rate derivatives for the purpose of the clearing thresholds would also be 0.

Case C

An NFC (NFC A) has a 1 billion EUR position in interest rate derivatives not for hedging and two other NFCs (NFC B and NFC C) within the same group only have a 2 billion EUR position each in interest rate derivatives classified as hedging.

Total NFC A position in interest rate derivatives for the purpose of the clearing thresholds would be 1 billion EUR, total NFC B and NFC C position for the purpose of the clearing thresholds in interest rate derivatives would be 0 respectively.

Case D

An NFC (NFC A) conducts some sort of portfolio management of its trading activity. For example, NFC A has a 2 billion EUR position in interest rate derivatives which are partly (1 billion EUR) not for hedging and partly (1 billion EUR) for hedging on behalf of another NFC (NFC B) within the same group.

Total NFC A position in interest rate derivatives for the purpose of the clearing thresholds would be 1 billion EUR and total NFC B position in interest rate derivatives for the purpose of the clearing thresholds would be 0.