Impacts of EMIR for the Buy Side: The Greater Good, But a Greater Cost

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2 April 2013


Celent estimates that 90% of the buy side believes that aggressive regulatory changes and uncertainties are putting the most pressure on their businesses in 2013. Not surprisingly, EMIR, Dodd-Frank, and Basel III are expected to exert the largest influence on the economics of derivatives trading in the next two years.

The buy side is a clear supporter of the European Market Infrastructure Regulation (EMIR) because it decreases systemic risk exposure that end clients do not want to face again. In the report Impacts of EMIR for the Buy Side: The Greater Good, But a Greater Cost, Celent looks at the impact of EMIR on buy side players.

In December 2012, the European Securities and Markets Authority (ESMA) forecast that market participants are unlikely to face mandatory clearing of over-the-counter (OTC) derivatives in Europe before the middle of 2014, around 18 months later than intended, obviously pushing back structural reforms.

The new regulation requires entities that trade any derivatives contract, including interest rates, foreign exchange, equity, credit, and commodity derivatives, to:

  • Report every derivative contract that they enter to a trade repository.
  • Implement new risk management standards, including operational processes and margining, for all uncleared OTC derivatives.

It is clear that the impact of this regulation will be dramatic, in terms of creating economic uncertainty in the market infrastructure and potentially disintermediating liquidity.

“Only 30% of buy side players are fully operational in terms of implementation efforts for OTC clearing and collateralization," says Joséphine de Chazournes, Senior Analyst with Celent’s Securities & Investments Group and author of the report, “However, the implementation of EMIR is going to happen gradually.”

In this report, Celent explains the regulatory framework of EMIR, and the parallels with the Dodd-Frank Act. It then looks EMIR’s impact and considers the questions the buy side faces.

This 26-page report contains five figures and five tables.