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The significant changes coming to the counterparty classification under EMIR 3, particularly for Non-Financial Counterparties (NFCs). Here’s a summary and additional context based on recent developments:
Revised Clearing Threshold Calculation for EU NFCs:
* Entity-Level Calculation: A major amendment is that an EU NFC will now calculate its clearing threshold based on only its own trades at the entity level, rather than a group-level assessment. This simplifies the process for individual NFCs but needs to be considered in conjunction with other changes.
* Exclusion of Cleared Trades: Critically, the calculation will only include trades that are not cleared by an EU CCP or a recognized third-country CCP. This means that if an NFC voluntarily clears some of its OTC derivatives, those cleared positions will not count towards the threshold calculation, which could potentially keep an entity below the clearing threshold.
ESMA’s Proposed Lower Clearing Thresholds:
* Maintaining Coverage: While the new calculation methodology might, on its own, lead to fewer entities being classified as NFC+, ESMA’s recent consultations (e.g., the consultation paper published on April 8, 2025, which closed on June 16, 2025) confirm the intention to propose new, lower clearing thresholds for uncleared positions.
* The Goal: The aim of these lower thresholds is to “capture a similar population of entities and notionals as before,” thereby ensuring that the clearing obligation continues to apply to a significant segment of the market, even with the revised calculation methodology.
* Proposed Thresholds (for uncleared positions for both FCs and NFCs):
* Interest Rate Derivatives: €1.8 billion (down from €3 billion currently)
* Credit Derivatives: €0.7 billion (down from €1 billion currently)
* Equity Derivatives: €0.7 billion (down from €1 billion currently)
* FX Derivatives: €3 billion (unchanged from €3 billion currently)
* Commodity and Emission Allowance Derivatives: €3 billion (down from €4 billion currently)
Hedging Exemption:
* Continued Group-Level Application: The intention is for the hedging exemption (for transactions objectively reducing risk) to continue to apply at the group level, despite the shift to an entity-level approach for the general clearing threshold calculation. This is a crucial point for multinational groups that manage risk centrally.
* ESMA’s Call for Suggestions: While no specific amendment to the hedging exemption itself was proposed in recent consultations, ESMA has indeed invited suggestions, particularly regarding the treatment of renewable financial or virtual power purchase agreements (PPAs). This indicates an openness to refining the hedging exemption to better accommodate evolving market practices and specific industry needs.
Effective Date of Changes:
* Dependency on Technical Standards: You are absolutely correct that no changes to counterparty classification will take effect until the relevant technical standards (RTS) are finalized and enter into force.
* Timeline for RTS: EMIR 3 mandates ESMA to submit draft technical standards to the European Commission by December 25, 2025.
* Unclear Effective Date: Given this timeline, the ultimate effective date for these changes remains unclear. Once submitted by ESMA, the European Commission reviews the draft RTS, and they then undergo a scrutiny period by the European Parliament and Council before being published in the Official Journal of the EU. This process can take several months.
In summary, EMIR 3 is recalibrating how NFCs assess their clearing obligation, focusing on their uncleared positions at an entity level. However, ESMA’s proposed lower thresholds aim to maintain the breadth of the clearing obligation. While the hedging exemption largely remains group-based, the final details, particularly the effective dates for these changes, hinge on the timely finalization and adoption of the forthcoming technical standards.

Video courtesy of First Bank of Nigeria

Video courtesy of First Bank of Nigeria