Clarity to market participants on the equivalence of derivatives rules to European requirements has been much anticipated. On 3 September, ESMA published its technical advice to the European Commission on the equivalence of the US and Japanese derivatives frameworks to the EU rules. The advice is not the final EU statement on the equivalence of these regimes, because the European Commission is charged with adopting legislative acts on equivalence. Once it has considered ESMA’s advice, the Commission has the discretion (not apparently limited to concerns about financial services) to declare equivalence. Broadly speaking, several US and Japanese rules on derivatives have been considered equivalent, but this is subject to market participants agreeing to apply European standards, where higher.

Equivalence -

Under the European Market Infrastructure Regulation (“EMIR”) the European Commission may adopt implementing acts declaring that the legal, supervisory and enforcement arrangements of a non-EUcountry are equivalent to the requirements in EMIR. For a central counterparty (“CCP”) or trade repository (“TR”) established in a non-EU country to provide their services in the EU, an equivalence decision is one of the requirements that must be fulfilled before the European Securities and Markets Authority (“ESMA”) will grant access of the CCP or TR to EU investors. Equivalence decisions on other obligations under EMIR have the effect that if one party to a derivative trade is established in a non-EU country and the contract is subject to EMIR, the counter parties may choose to follow the non-EU country’s equivalent regime instead of EMIR.