ESAs publish joint EMIR STS standards

On 18 December 2018, the European Supervisory Authorities (ESAs) published two joint draft Regulatory Technical Standards (RTS) to amend the RTS on the clearing obligation and risk mitigation techniques for non-cleared OTC derivatives.

These standards provide a specific treatment for simple, transparent and standardised (STS) securitisation to ensure a level playing field with covered bonds. They are required for the proper implementation of the European Market Infrastructure Regulation (EMIR) and will amend the current regulation on the clearing obligation and risk mitigation techniques on OTC derivatives not cleared by central counterparties (CCPs).  

In particular, the draft RTS on risk mitigation techniques amend the existing RTS by extending the special treatment currently associated with covered bonds to STS securitisations. The treatment, which allows no exchange of initial margin and only collection of variation margin, is applicable only where a STS securitisation structure meets a specific set of conditions equivalent to the ones required for covered bonds issuers to be able to benefit from that same treatment.

Legal basis and background

The ESAs developed these two RTS in accordance with Articles 4 and 11 of EMIR as amended under Article 42 of the Securitisation Regulation, which contains two mandates for the ESAs, one on the clearing obligation and one on risk mitigation techniques for non-cleared OTC derivatives.

Article 42 of Regulation (EU) 2017/2402 (Securitisation Regulation) amended Regulation (EU) No 648/2012 (EMIR) in order to provide a specific treatment for STS Securitisation within the clearing obligation and on risk mitigation techniques on non-cleared OTC derivatives frameworks.