EUROPE - The European Council has adopted the European Market Infrastructure Regulation (EMIR) - which aims to increase transparency in derivatives and reduce risk in the OTC derivatives market - but a number of issues could hamper its implementation before year-end as originally planned by Brussels.

Following the agreement signed by both the European Parliament and the Council back in February this year, the Council has now ratified the EMIR proposals.

EMIR aims to drive all standardised OTC derivatives trades through central clearing with the view to reducing counterparty risk.

"This is aimed at preventing the default of one market participant causing the collapse of other market players, thereby putting the entire financial system at risk," the Council said.

To be authorised, a central counterparty (CCP) would have to hold a minimum amount of financial resources.

Specifically, the regulation requires a CCP to have a mutualised default fund to which members of the CCP have to contribute.

In addition, all derivatives contracts will have to be reported to trade repositories, which would have to publish aggregate positions by class of derivatives.

Brussels is now seeking to implement the new regulation before year-end.

However, another step will have to be taken by the European Securities and Markets Authority (ESMA) before the EMIR can be introduced.

ESMA is currently consulting the industry on the draft Regulatory Technical Standards (RTS) and draft Implementing Technical Standards (ITS), which both set out the specific details of how Brussels is to implement EMIR's requirements.

The consultation will close on 5 August, while the final draft standards are to be submitted to the European Commission for endorsement by 30 September.

Speaking at the International Capital Markets Association conference in Milan in May, Verena Ross, executive director at ESMA, said: "The deadline is intended to ensure the Commission can endorse the standards by the end of the year and therefore meet the G20 commitments [agreed in Pittsburgh in 2009] on reviewing the OTC derivatives market to be centrally cleared by the end of the year."

However, according to Ben Gunnee, European director at Mercer Sentinel Group, the implementation of EMIR is unlikely to take place by then.

"The chances that market participants will be prepared before year-end for the arrival of EMIR are slim," he said.

"That is the reason why ESMA is now mentioning the option of postponing the introduction of EMIR to the first quarter of next year."

Under the agreement reached by the Parliament and the Council in February, pension funds were granted a temporary exemption of three years - with a potential extension of two years and, subsequently, one year, for a possible total of six years.

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