For derivatives that are not subject to clearing obligations, and therefore are not centrally cleared, EMIR stipulates stricter requirements for risk management. These requirements are set out in Delegated Regulation (EU) No 149/2013 (RTS 149/2013) and include a mandatory timely electronic confirmation of OTC derivative transactions. The parties to an OTC derivative contract are additionally required pursuant to EMIR and RTS 149/2013 to conduct a portfolio reconciliation at regular intervals. The frequency of these checks depends on the number of outstanding OTC derivative contracts as well as on the counterparties involved (financial or non-financial counterparty). Furthermore, financial and non-financial counterparties with 500 or more OTC derivative contracts outstanding, shall conduct a portfolio compression which is aimed at reducing the default risk. Where a portfolio compression is not appropriate, financial and non-financial counterparties shall ensure that they are able to provide a reasonable and valid explanation to FMA. EMIR also requires financial and non-financial counterparties that exceed the clearing threshold to apply the mark-to-market valuation of outstanding OTC derivative contracts on a daily basis. Finally, appropriate dispute resolution procedures and processes shall be agreed between the counterparties to an OTC derivative contract.
EMIR stipulates an obligation to exchange collateral which applies to OTC derivative transactions entered into by financial counterparties (FC) or by, on the one side, an FC and, on the other side, a non-financial counterparties exceeding the clearing threshold. It includes the exchange of initial margin and of variation margin. Pursuant to Article 37(1) of Delegated Regulation (EU) No 2016/2251 (RTS 2016/2251), initial margin shall be exchanged by counterparties both of which have, or belong to groups each of which has, an aggregate average notional amount of non-centrally cleared OTC derivatives above EUR 3 000 billion. From 1 September 2021, counterparties shall exchange collateral pursuant to Article 36(1) RTS 2016/2251 if they both have, or belong to groups each of which has, an aggregate average notional amount of non-centrally cleared derivatives that is above EUR 50 billion. By 1 September 2022, this amount is lowered to EUR 8 billion.