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Under EMIR and UK EMIR, the calculation of OTC derivatives positions for the purposes of the clearing thresholds for non-financial counterparties (NFCs) is an annual one. For many counterparties, the calculation must be re-run in accordance with the relevant rules by 17 June 2025 for the period June 2024 to May 2025 for an entity to continue to benefit from being an NFC-, or for an NFC+ to rely on reduced scope of mandatory clearing where it falls below the clearing threshold for a particular asset class1.
Failure to run the calculation would mean that the entity is considered to be an NFC+ across all asset classes. Note that there may be differences in the calculation under EMIR and UK EMIR due to variations in certain defined terms, and the divergence in the clearing threshold for commodity (and certain other) derivatives, which is €3 billion under UK EMIR and €4 billion under EMIR.
To do: Make appropriate internal records of the calculation (or decision not to run the calculation) and address all implications of any resulting change in status. These may include notifications to regulators and disclosures to counterparties.
EMIR 3. Changes made by EMIR 3 to the methodology for these calculations under EMIR are not yet applicable, pending entry into force of regulatory technical standards (RTS) revising the clearing thresholds. ESMA is currently consulting on these RTS (see our alert for more details). The implementation timeline for these changes, expected in 2026, is not yet clear. In the meantime, the existing clearing thresholds and calculation methodology apply. Where relevant, counterparties should monitor these developments to understand the revised provisions, and any implications these changes may have for their EMIR classification.
1 Note the calculation date may vary, for example where a counterparty has re-run, in accordance with the applicable rules, its calculation of the aggregate month-end average position for the previous 12 months since 17 June 2024, or began entering into derivatives after that date.
Under EMIR and UK EMIR, the calculation of OTC derivatives positions for the purposes of determining whether an entity is a small FC, and therefore exempt from the clearing obligation, is also an annual one. Since 2023, this calculation may be of particular relevance to EU pension schemes previously benefiting from temporary exemption from clearing following the expiry of this relief, in the case of EMIR only, on 18 June 2023.
Note aspects of the calculation do differ from the NFC calculation and there may be differences in the calculation under EMIR and UK EMIR due to variations in certain defined terms and the divergence in the clearing threshold for commodity (and certain other) derivatives, which is €3 billion under UK EMIR and €4 billion under EMIR. For many counterparties, the calculation must be re-run in accordance with the relevant rules by 17 June 2025 for the period June 2024 to May 2025 for an entity to continue to benefit from being a small FC that is exempt from the clearing obligation2.
To do: Make appropriate internal records of the calculation (or decision not to run the calculation) and address all implications of any resulting change in status. These may include notifications to regulators and disclosures to counterparties.
EMIR 3. As in the case of NFCs, changes to the calculation methodology and clearing thresholds under EMIR, including a new aggregate threshold for FCs, are pending. The implementation timeline for these changes, expected in 2026, is not yet clear. In the meantime, the existing clearing thresholds and calculation methodology apply. Where relevant, counterparties should monitor these developments to understand the revised provisions, and any implications these changes may have for their EMIR classification.
2 As noted above in respect of the NFC calculations, the calculation date may vary in certain circumstances.
With initial margin (IM) fully phased-in since September 2022, potential in-scope counterparties need to conduct the annual calculation of their aggregate average notional amount (AANA). Under both EMIR and UK EMIR, AANA continues to be determined by reference to month-end positions for March, April and May each year and, where the €8 billion AANA threshold is exceeded, or ceases to be exceeded, an entity will come in-scope, or fall out-of-scope, for initial margin from the beginning of the following calendar year. The 2025 AANA calculation may therefore impact application of initial margin from the beginning of 2026.
In the UK, the FCA and PRA are currently consulting on amendments to the UK EMIR margin rules intended to reduce the burden on market participants, particularly where counterparties cease to be subject to the requirement to exchange IM (see our alert for further details). Once implemented, these amendments may, in certain circumstances, affect the point at which a UK counterparty transacting with a party in different jurisdiction may come out of scope of IM.
To do: Make appropriate internal records of the AANA calculation where relevant, and address all implications of any resulting change in initial margin status, including disclosures to counterparties. Whilst there is no set date for conducting these AANA calculations, initial margin arrangements are complex and time consuming to establish. It is advisable to determine AANA promptly, to allow time to prepare for compliance if necessary.
EU counterparties using an initial margin model to exchange IM, rather than the standardised methodology set out in the technical standards on margining, must also prepare to meet new model authorisation requirements introduced by EMIR 3. The EBA published a no-action letter in December 2024, providing that national competent authorities (NCAs) need not prioritise the processing of applications under these requirements until RTS on IM model validation and guidelines on the application and authorisation process under EMIR 3 become applicable. The no-action letter also confirmed that existing use of IM models, as at 24 December 2024, could continue. Nonetheless, EU counterparties using an IM model to exchange IM are required to make an application to their NCA ahead of any change to an existing IM model that they use. For the purposes of this initial application, recalibration is considered to be a change.
The EBA has set out in the Annex to the no-action letter the information counterparties are expected to provide. The ECB has also issued FAQs relevant to Significant Institutions, and BaFin has published a template on its website for initial applications to BaFin and, if applicable, the Bundesbank.
For EU users of ISDA SIMM, the update published on 22 May 2025 and effective from 12 July 2025 will trigger this obligation to make an application, which must be submitted prior to the change becoming applicable. To assist ISDA SIMM users with these requirements, ISDA has made available guidance, reflecting further clarification from the EBA, together with a generic template for the initial application.
Any proposed new use of an IM model is also subject to the EMIR authorisation requirements.
To do: Where relevant, EU ISDA SIMM users to submit to NCAs applications for approval of the use of this model.
This content is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here, please get in touch with your regular contact at Linklaters.
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