
CHAPTER I
Article 1 
For the purposes of this Regulation the following definitions apply:

((a)) ‘indirect client’ means the client of a client of a clearing member;
((b)) ‘indirect clearing arrangement’ means the set of contractual relationships between the central counterparty (CCP), the clearing member, the client of a clearing member and indirect client that allows the client of a clearing member to provide clearing services to an indirect client;
((c)) ‘confirmation’ means the documentation of the agreement of the counterparties to all the terms of an over the counter (OTC) derivative contract.
CHAPTER II
Article 2 

1. Where a clearing member is prepared to facilitate indirect clearing, any client of such clearing member shall be permitted to provide indirect clearing services to one or more of its own clients, provided that the client of the clearing member is an authorised credit institution, investment firm or an equivalent third country credit institution or investment firm.
2. The contractual terms of an indirect clearing arrangement shall be agreed between the client of a clearing member and the indirect client, after consultation with the clearing member on the aspects that can impact the operations of the clearing member. They shall include contractual requirements on the client to honour all obligations of the indirect client towards the clearing member. These requirements shall refer only to transactions arising as part of the indirect clearing arrangement, the scope of which shall be clearly documented in the agreed contracts.
Article 3 

1. Indirect clearing arrangements shall not be subject to business practices of the CCP which act as a barrier to their establishment on reasonable commercial terms. At the request of a clearing member, the CCP shall maintain separate records and accounts enabling each client to distinguish in accounts held with the CCP the assets and positions of the client from those held for the accounts of the indirect clients of the client.
2. A CCP shall identify, monitor and manage any material risks arising from indirect clearing arrangements that could affect the resilience of the CCP.
Article 4 

1. A clearing member that offers to facilitate indirect clearing services shall do so on reasonable commercial terms. Without prejudice to the confidentiality of contractual arrangements with individual clients, the clearing member shall publicly disclose the general terms on which it is prepared to facilitate indirect clearing services. These terms may include minimum operational requirements for clients that provide indirect clearing services.
2. When facilitating indirect clearing arrangements, a clearing member shall implement any of the following segregation arrangements as indicated by the client:
(a) keep separate records and accounts enabling each client to distinguish in accounts with the clearing member the assets and positions of the client from those held for the accounts of its indirect clients;
(b) keep separate records and accounts enabling each client to distinguish in accounts with the clearing member the assets and positions held for the account of an indirect client from those held for the account of other indirect clients.
3. The requirement to distinguish assets and positions with the clearing member shall be considered to be met if the conditions specified in Article 39(9) of Regulation (EU) No 648/2012 are satisfied.
4. A clearing member shall establish robust procedures to manage the default of a client that provides indirect clearing services. These procedures shall include a credible mechanism for transferring the positions and assets to an alternative client or clearing member, subject to the agreement of the indirect clients affected. A client or clearing member shall not be obliged to accept these positions unless it has entered into a prior contractual agreement to do so.
5. The clearing member shall also ensure that its procedures allow for the prompt liquidation of the assets and positions of indirect clients and the clearing member to pay all monies due to the indirect clients following the default of the client.
6. A clearing member shall identify, monitor and manage any risks arising from facilitating indirect clearing arrangements, including using information provided by clients under Article 4(3). The clearing member shall establish robust internal procedures to ensure this information cannot be used for commercial purposes.
Article 5 

1. A client that provides indirect clearing services shall keep separate records and accounts that enable it to distinguish between its own assets and positions and those held for the account of its indirect clients. It shall offer indirect clients a choice between the alternative account segregation options provided for in Article 4(2) and shall ensure that indirect clients are fully informed of the risks associated with each segregation option. The information provided by the client to indirect clients shall include details of arrangements for transferring positions and accounts to an alternative client.
2. A client that provides indirect clearing services shall request the clearing member to open a segregated account at the CCP. The account shall be for the exclusive purpose of holding the assets and positions of its indirect clients.
3. A client shall provide the clearing member with sufficient information to identify, monitor and manage any risks arising from facilitating indirect clearing arrangements. In the event of default of the client, all information held by the client in respect of its indirect clients shall be made immediately available to the clearing member.
CHAPTER III
Article 6 

1. The notification for the purpose of the clearing obligation shall include the following information:
(a) the identification of the class of OTC derivative contracts;
(b) the identification of the OTC derivative contracts within the class of OTC derivative contracts;
(c) other information to be included in the public register in accordance with Article 8;
(d) any further characteristics necessary to distinguish OTC derivative contracts within the class of OTC derivative contracts from OTC derivative contracts outside that class;
(e) evidence of the degree of standardisation of the contractual terms and operational processes for the relevant class of OTC derivative contracts;
(f) data on the volume of the class of OTC derivative contracts;
(g) data on the liquidity of the class of OTC derivative contracts;
(h) evidence of availability to market participants of fair, reliable and generally accepted pricing information for contracts in the class of OTC derivative contracts;
(i) evidence of the impact of the clearing obligation on availability to market participants of pricing information.
2. For the purpose of assessing the date or dates from which the clearing obligation takes effect, including any phasing-in and the categories of counterparties to which the clearing obligation applies, the notification for the purpose of the clearing obligation shall include:
(a) data relevant for assessing the expected volume of the class of OTC derivative contracts if it becomes subject to the clearing obligation;
(b) evidence of the ability of the CCP to handle the expected volume of the class of OTC derivative contracts if it becomes subject to the clearing obligation and to manage the risk arising from the clearing of the relevant class of OTC derivative contracts, including through client or indirect client clearing arrangements;
(c) the type and number of counterparties active and expected to be active within the market for the class of OTC derivative contracts if it becomes subject to the clearing obligation;
(d) an outline of the different tasks to be completed in order to start clearing with the CCP, together with the determination of the time required to fulfil each task;
(e) information on the risk management, legal and operational capacity of the range of counterparties active in the market for the class of OTC derivative contracts if it becomes subject to the clearing obligation.
3. The data pertaining to the volume and the liquidity shall contain for the class of OTC derivative contracts and for each derivative contract within the class, the relevant market information, including historical data, current data as well as any change that is expected to arise if the class of OTC derivative contracts becomes subject to the clearing obligation, including:
(a) the number of transactions;
(b) the total volume;
(c) the total open interest;
(d) the depth of orders including the average number of orders and of requests for quotes;
(e) the tightness of spreads;
(f) the measures of liquidity under stressed market conditions;
(g) the measures of liquidity for the execution of default procedures.
4. The information related to the degree of standardisation of the contractual terms and operational processes for the relevant class of OTC derivative contracts provided in point (e) of paragraph 1 shall include, for the class of OTC derivative contracts and for each derivative contract within the class, data on the daily reference price as well as the number of days per year with a reference price it considers reliable over at least the previous 12 months.
CHAPTER IV
Article 7 

1. In relation to the degree of standardisation of the contractual terms and operational processes of the relevant class of OTC derivative contracts, the European Securities and Markets Authority (ESMA) shall take into consideration:
(a) whether the contractual terms of the relevant class of OTC derivative contracts incorporate common legal documentation, including master netting agreements, definitions, standard terms and confirmations which set out contract specifications commonly used by counterparties;
(b) whether the operational processes of that relevant class of OTC derivative contracts are subject to automated post-trade processing and lifecycle events that are managed in a common manner according to a timetable which is widely agreed among counterparties.
2. In relation to the volume and liquidity of the relevant class of OTC derivative contracts, ESMA shall take into consideration:
(a) whether the margins or financial requirements of the CCP would be proportionate to the risk that the clearing obligation intends to mitigate;
(b) the stability of the market size and depth in respect of the product over time;
(c) the likelihood that market dispersion would remain sufficient in the event of the default of a clearing member;
(d) the number and the value of the transactions.
3. In relation to the availability of fair, reliable and generally accepted pricing information in the relevant class of OTC derivative contracts, ESMA shall take into consideration whether the information needed to accurately price the contracts within the relevant class of OTC derivative contracts is easily accessible to market participants on a reasonable commercial basis and whether it would continue to be easily accessible if the relevant class of OTC derivative contracts became subject to the clearing obligation.
CHAPTER V
Article 8 

1. The ESMA public register shall include for each class of OTC derivative contracts subject to the clearing obligation:
(a) the asset class of OTC derivative contracts;
(b) the type of OTC derivative contracts within the class;
(c) the underlyings of OTC derivative contracts within the class;
(d) for underlyings which are financial instruments, an indication of whether the underlying is a single financial instrument or issuer or an index or portfolio;
(e) for other underlyings an indication of the category of the underlying;
(f) the notional and settlement currencies of OTC derivative contracts within the class;
(g) the range of maturities of OTC derivative contracts within the class;
(h) the settlement conditions of OTC derivative contracts within the class;
(i) the range of payment frequency of OTC derivative contracts within the class;
(j) the product identifier of the relevant class of OTC derivative contracts;
(k) any other characteristic required to distinguish one contract in the relevant class of OTC derivative contracts from another.
2. In relation to CCPs that are authorised or recognised for the purpose of the clearing obligation, the ESMA public register shall include for each CCP:
(a) the identification code, in accordance with Article 3 of Implementing Commission Regulation (EU) No 1247/2012;
(b) the full name;
(c) the country of establishment;
(d) the competent authority designated in accordance with Article 22 of Regulation (EU) No 648/2012.
3. In relation to the dates from which the clearing obligation takes effect, including any phased-in implementation, the ESMA public register shall include:
(a) the identification of the categories of counterparties to which each phase-in period applies;
(b) any other condition required pursuant to the regulatory technical standards adopted under Article 5(2) of Regulation (EU) No 648/2012, in order for the phase-in period to apply.
4. The ESMA public register shall include the reference of the regulatory technical standards adopted under Article 5(2) of Regulation (EU) No 648/2012, according to which each clearing obligation was established.
5. In relation to the CCP that has been notified to ESMA by the competent authority, the ESMA public register shall include at least:
(a) the identification of the CCP;
(b) the asset class of OTC derivative contracts that are notified;
(c) the type of OTC derivative contracts;
(d) the date of the notification;
(e) the identification of the notifying competent authority.
CHAPTER VI
Article 9 

1. Liquidity fragmentation shall be deemed to occur when the participants in a trading venue are unable to conclude a transaction with one or more other participants in that venue because of the absence of clearing arrangements to which all participants have access.
2. Access by a CCP to a trading venue which is already served by another CCP shall not be deemed to give rise to liquidity fragmentation within the trading venue if, without the need to impose a requirement on clearing members of the incumbent CCP to become clearing members of the requesting CCP, all participants to the trading venue can clear, directly or indirectly, through one of the following:
(a) at least one CCP in common;
(b) clearing arrangements established by the CCPs.
3. The arrangements for the fulfilment of the conditions under point (a) or (b) of paragraph 2 shall be established before the requesting CCP starts providing clearing services to the relevant trading venue.
4. Access to a common CCP as referred to in point (a) of paragraph 2 may be established through two or more clearing members, or two or more clients or through indirect clearing arrangements.
5. Clearing arrangements referred to in point (b) of paragraph 2 may foresee the transfer of transactions executed by such market participants to clearing members of other CCPs. Although access by a CCP to a trading venue should not require interoperability, an interoperability arrangement which has been agreed by the relevant CCPs and approved by the relevant competent authorities may be used to fulfil the requirement for access to common clearing arrangements.
CHAPTER VII
Article 10 

1. An OTC derivative contract shall be objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of the non-financial counterparty or of that group, when, by itself or in combination with other derivative contracts, directly or through closely correlated instruments, it meets one of the following criteria:
(a) 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;
(b) it covers the risks arising from the potential indirect impact on the value of assets, services, inputs, products, commodities or liabilities referred to in point (a), resulting from fluctuation of interest rates, inflation rates, foreign exchange rates or credit risk;
(c) it 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.
Article 11 
The clearing thresholds values for the purpose of the clearing obligation shall be:

((a)) EUR 1 billion in gross notional value for OTC credit derivative contracts;
((b)) EUR 1 billion in gross notional value for OTC equity derivative contracts;
((c)) EUR 3 billion in gross notional value for OTC interest rate derivative contracts;
((d)) EUR 3 billion in gross notional value for OTC foreign exchange derivative contracts;
((e)) EUR 3 billion in gross notional value for OTC commodity derivative contracts and other OTC derivative contracts not provided for under points (a) to (d).
CHAPTER VIII
Article 12 

1. An OTC derivative contract concluded between financial counterparties or non-financial counterparties referred to in Article 10 of Regulation (EU) No 648/2012 and which is not cleared by a CCP shall be confirmed, where available via electronic means, as soon as possible and at the latest:
(a) for credit default swaps and interest rate swaps that are concluded up to and including 28 February 2014, by the end of the second business day following the date of execution of the OTC derivative contract;
(b) for credit default swaps and interest rate swaps that are concluded after 28 February 2014, by the end of the business day following the date of execution of the OTC derivative contract;
(c) for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded up to and including 31 August 2013, by the end of the third business day following the date of execution of the derivative contract;
(d) for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded after 31 August 2013 up to and including 31 August 2014, by the end of the second business day following the date of execution of the derivative contract;
(e) for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded after 31 August 2014, by the end of the business day following the date of execution of the derivative contract.
2. An OTC derivative contract concluded with a non-financial counterparty not referred to in Article 10 of Regulation (EU) No 648/2012, shall be confirmed as soon as possible, where available via electronic means, and at the latest:
(a) for credit default swaps and interest rate swaps that are concluded up to and including 31 August 2013, by the end of the fifth business day following the date of execution of the OTC derivative contract;
(b) for credit default swaps and interest rate swaps that are concluded after 31 August 2013 up to and including 31 August 2014, by the end of the third business day following the date of execution of the OTC derivative contract;
(c) for credit default swaps and interest rate swaps that are concluded after 31 August 2014, by the end of the second business day following the date of execution of the OTC derivative contract;
(d) for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded up to and including 31 August 2013, by the end of the seventh business day following the date of execution of the derivative contract;
(e) for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded after 31 August 2013 up to and including 31 August 2014, by the end of the fourth business day following the date of execution of the derivative contract;
(f) for equity swaps, foreign exchange swaps, commodity swaps and all other derivatives not provided for in point (a) that are concluded after 31 August 2014, by the end of the second business day following the date of execution.
3. Where a transaction referred to in paragraph 1 or 2 is concluded after 16.00 local time, or with a counterparty located in a different time zone which does not allow confirmation by the set deadline, the confirmation shall take place as soon as possible and, at the latest, one business day following the deadline set in paragraph 1 or 2 as relevant.
4. Financial counterparties shall have the necessary procedure to report on a monthly basis to the competent authority designated in accordance with Article 48 of Directive 2004/39/EC of the European Parliament and of the Council the number of unconfirmed OTC derivative transactions referred to in paragraphs 1 and 2 that have been outstanding for more than five business days.
Article 13 

1. Financial and non-financial counterparties to an OTC derivative contract shall agree in writing or other equivalent electronic means with each of their counterparties on the arrangements under which portfolios shall be reconciled. Such agreement shall be reached before entering into the OTC derivative contract.
2. Portfolio reconciliation shall be performed by the counterparties to the OTC derivative contracts with each other or by a qualified third party duly mandated to this effect by a counterparty. The portfolio reconciliation shall cover key trade terms that identify each particular OTC derivative contract and shall include at least the valuation attributed to each contract in accordance with Article 11(2) of Regulation (EU) No 648/2012.
3. In order to identify at an early stage any discrepancy in a material term of the OTC derivative contract, including its valuation, the portfolio reconciliation shall be performed:
(a) for a financial counterparty or a non-financial counterparty referred to in Article 10 of Regulation (EU) No 648/2012:
((i)) each business day when the counterparties have 500 or more OTC derivative contracts outstanding with each other;
((ii)) once per week when the counterparties have between 51 and 499 OTC derivative contracts outstanding with each other at any time during the week;
((iii)) once per quarter when the counterparties have 50 or less OTC derivative contracts outstanding with each other at any time during the quarter;
(b) for a non-financial counterparty not referred to in Article 10 of Regulation (EU) No 648/2012:
((i)) once per quarter when the counterparties have more than 100 OTC derivative contracts outstanding with each other at any time during the quarter;
((ii)) once per year when the counterparties have 100 or less OTC derivative contracts outstanding with each other.
Article 14 
Financial counterparties and non-financial counterparties with 500 or more OTC derivative contracts outstanding with a counterparty which are not centrally cleared shall have in place procedures to regularly, and at least twice a year, analyse the possibility to conduct a portfolio compression exercise in order to reduce their counterparty credit risk and engage in such a portfolio compression exercise.
Financial counterparties and non-financial counterparties shall ensure that they are able to provide a reasonable and valid explanation to the relevant competent authority for concluding that a portfolio compression exercise is not appropriate.
Article 15 

1. When concluding OTC derivative contracts with each other, financial counterparties and non-financial counterparties shall have agreed detailed procedures and processes in relation to:
(a) the identification, recording, and monitoring of disputes relating to the recognition or valuation of the contract and to the exchange of collateral between counterparties. Those procedures shall at least record the length of time for which the dispute remains outstanding, the counterparty and the amount which is disputed;
(b) the resolution of disputes in a timely manner with a specific process for those disputes that are not resolved within five business days.
2. Financial counterparties shall report to the competent authority designated in accordance with Article 48 of Directive 2004/39/EC any disputes between counterparties relating to an OTC derivative contract, its valuation or the exchange of collateral for an amount or a value higher than EUR 15 million and outstanding for at least 15 business days.
Article 16 

1. Market conditions that prevent marking-to market of an OTC derivative contract shall be considered to occur in either of the following situations:
(a) when the market is inactive;
(b) where the range of reasonable fair values estimates is significant and the probabilities of the various estimates cannot reasonably be assessed.
2. A market for an OTC derivative contract shall be considered inactive when quoted prices are not readily and regularly available and those prices available do not represent actual and regularly occurring market transactions on an arm’s length basis.
Article 17 
For using marking-to-model, financial and non-financial counterparties shall have a model that:

((a)) incorporates all factors that counterparties would consider in setting a price, including using as much as possible marking-to-market information;
((b)) is consistent with accepted economic methodologies for pricing financial instruments;
((c)) is calibrated and tested for validity using prices from any observable current market transactions in the same financial instrument or based on any available observable market data;
((d)) is validated and monitored independently, by another division than the division taking the risk;
((e)) is duly documented and approved by the board of directors as frequently as necessary, following any material change and at least annually. This approval may be delegated to a committee.
Article 18 

1. The application or notification to the competent authority of the details of the intragroup transaction shall be in writing and shall include:
(a) the legal counterparties to the transactions including their identifiers in accordance with Article 3 of Implementing Regulation (EU) No 1247/2012;
(b) the corporate relationship between the counterparties;
(c) details of the supporting contractual relationships between the parties;
(d) the category of intragroup transaction as specified under paragraph 1 and points (a) to (d) of paragraph 2 of Article 3 of Regulation (EU) No 648/2012;
(e) details of the transactions for which the counterparty is seeking the exemption, including:
((i)) the asset class of OTC derivative contracts;
((ii)) the type of OTC derivative contracts;
((iii)) the type of underlyings;
((iv)) the notional and settlement currencies;
((v)) the range of contract tenors;
((vi)) the settlement type;
((vii)) the anticipated size, volumes and frequency of OTC derivative contracts per annum.
2. As part of its application or notification to the relevant competent authority, a counterparty shall also submit supporting information evidencing that the conditions of Article 11(6) to (10) of Regulation (EU) No 648/2012 are fulfilled. The supporting documents shall include copies of documented risk management procedures, historical transaction information, copies of the relevant contracts between the parties and may include a legal opinion upon request from the competent authority.
Article 19 

1. The notification by a competent authority of the details of the intragroup transaction shall be submitted to ESMA in writing:
(a) within one month of the receipt of the notification with respect to a notification under Article 11(7) or (9) of Regulation (EU) No 648/2012;
(b) within one month from the decision being submitted to the counterparty with respect to a decision of the competent authority under Article 11(6), (8) or (10) of Regulation (EU) No 648/2012.
2. The notification to ESMA shall include:
(a) the information listed in Article 18;
(b) whether there is a positive or a negative decision;
(c) in the case of a positive decision:
((i)) a summary of the reason for considering that the conditions set in Article 11(6), (7), (8), (9) or (10) of Regulation (EU) No 648/2012 as applicable are fulfilled;
((ii)) whether the exemption is a full exemption or a partial exemption with respect to of a notification related to Article 11(6), (8) or (10) of Regulation (EU) No 648/2012;
(d) in the case of a negative decision:
((i)) the identification of the conditions of Article 11(6), (7), (8), (9) or (10) of Regulation (EU) No 648/2012 as applicable that are not fulfilled;
((ii)) a summary of the reason for considering that such conditions are not fulfilled.
Article 20 
The information on an intragroup exemption to be disclosed publicly shall include:

((a)) the legal counterparties to the transactions including their identifiers in accordance with Article 3 of Implementing Regulation (EU) No 1247/2012;
((b)) the relationship between the counterparties;
((c)) whether the exemption is a full exemption or a partial exemption;
((d)) the notional aggregate amount of the OTC derivative contracts for which the intragroup exemption applies.
Article 21 
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
Articles 13, 14 and 15 shall apply six months after the date of entry into force of this Regulation.
This Regulation shall be binding in its entirety and directly applicable in all Member States.Done at Brussels, 19 December 2012.
For the Commission
The President
José Manuel BARROSO