François Masquelier (Simply Treasury): Emir consultation and hedging definition on clearing thresholds

Consultation on clearing thresholds under emir

Derivatives are a key tool for treasurers to manage and reduce commercial risks. EU authorities have long recognized the importance of preserving the ability of corporates to use these types of instruments (i.e. OTC derivatives) and to avoid forcing non-financial companies to divest cash to post as margin if they were forced to centrally clear. Corporates hedge commercial risks and have shown that hey current thresholds under EMIR already reflect an appropriate balance between risk mitigation and flexibility for the “real economy”. EACT has responded to the consultation paper as it considers that EMIR aims at enhancing the prudence and proportionality of the clearing obligation. The recalibration of thresholds and shift in calculation methodology could have several unintended consequences for corp’s. Similarly, we also consider that the current definition of hedging is fine. The current economic and political context perfectly illustrates why the real economy needs to have efficient hedging strategies by using derivative OTC products. Changing thresholds and hedging definition could impact the way we protect our businesses and create potential competitive disadvantages to European MNCs. We need to keep in mind that ESMA (European Securities and Markets Authority) plays a key role at Level 2 in the EU legislative process, particularly under EMIR (European Market Infrastructure Regulation), when it comes to clearing thresholds and the definition of hedging transactions. Therefore, we must express our views and prevent any restriction, reduction of thresholds or too stringent criteria to define “hedging”. In Level 3, ESMA also issues guidelines, Q&As, and opinions to ensure consistent interpretation across the EU. It has an important role under EMIR Level 2.