Article 4b
Post-trade risk reduction services
1.
Without prejudice to risk-mitigation techniques under Article 11, the clearing obligation referred to in Article 4(1) shall not apply to an OTC derivative contract that is initiated and concluded as the result of an eligible post-trade risk reduction (‘PTRR’) exercise (‘PTRR transaction’) carried out pursuant to paragraphs 2 to 4 of this Article.
2.
A PTRR transaction shall only be exempted from the clearing obligation referred to in Article 4(1) where:
(a)
the entity performing the PTRR exercise (‘PTRR service provider’) complies with the requirements set out under paragraphs 3 and 4 of this Article; and
(b)
each participant in the PTRR exercise complies with the requirements under paragraph 3 of this Article.
3.
An eligible PTRR exercise shall:
(a)
be performed by an entity authorised in accordance with Article 7 of the Directive 2014/65/EU that is independent of the counterparties to the OTC derivative contracts included in the PTRR exercise;
(b)
achieve a reduction in risk in each of the portfolios submitted to the PTRR exercise;
(c)
be accepted in full and, as a result, the participants in the PTRR exercise shall not be able to choose which trades to execute under the PTRR exercise;
(d)
be open for participation only to the entities that initially submitted a portfolio to the PTRR exercise;
(e)
be market risk neutral;
(f)
not contribute to price formation;
(g)
take the form of a compression, rebalancing or optimisation exercise or a combination thereof;
(h)
be executed on a bilateral or multilateral basis.
4.
A PTRR service provider shall:
(a)
comply with the pre-agreed rules of the PTRR exercise, including methods and algorithms in prescheduled cycles, and act in a reasonable, transparent and non-discriminatory manner;
(b)
ensure that entities participating in a PTRR exercise have no influence over the result of the PTRR exercise;
(c)
undertake regular compression exercises where PTRR exercises result in new PTRR transactions;
(d)
keep complete and accurate records of all transactions executed pursuant to a PTRR exercise, including:
(i)
information on transactions entered into as part of the PTRR exercise;
(ii)
transactions resulting from the PTRR exercise either as modified transactions or as new transactions; and
(iii)
the overall change in the risk of the different portfolios included in the PTRR exercise;
(e)
upon request make available, without undue delay, the records referred to in point (d) to the relevant competent authority and to ESMA; and
(f)
monitor the transactions resulting from the PTRR exercise in order to ensure, to the extent possible, that the PTRR exercise does not result in any misuse or circumvention of the clearing obligation.
5.
The competent authority which has authorised the PTRR service provider in accordance with Article 7 of Directive 2014/65/EU shall, before a PTRR transaction resulting from a PTRR exercise performed by that PTRR service provider is able to be exempted from the clearing obligation in accordance with paragraph 1, do the following without undue delay:
(a)
notify the name of the PTRR service provider to ESMA; and
(b)
share with ESMA its assessment of how the requirements referred to in paragraphs 3 and 4 are complied with by the PTRR service provider.
The competent authority referred to in the first subparagraph shall, at least on an annual basis, confirm to ESMA that the PTRR service provider continues to comply with the requirements referred to in paragraphs 3 and 4 or that the PTRR service provider is no longer providing PTRR services, as applicable.
ESMA shall transmit the information received under the first and second subparagraphs of this paragraph to the authorities of each Member State with supervisory powers in relation to the clearing obligation referred to in Article 4(1).
The competent authority referred to in the first subparagraph of this paragraph shall, without undue delay, notify ESMA where a PTRR service provider no longer complies with the requirements referred to in paragraphs 3 and 4. Upon such notification, ESMA shall remove the PTRR service provider from the list referred to in the fifth subparagraph of this paragraph. From the date when the PTRR service provider has been removed from that list, PTRR transactions resulting from a PTRR exercise performed by that PTRR service provider shall no longer be exempted from the clearing obligation in accordance with paragraph 1.
ESMA shall, on a yearly basis, publish a list of PTRR service providers notified to ESMA under the first subparagraph, point (a).
6.
ESMA shall develop draft regulatory technical standards to further specify the elements and requirements set out in paragraphs 3 and 4 and the following other conditions or characteristics of PTRR exercises:
(a)
what constitutes market risk neutrality in a PTRR exercise;
(b)
the required risk reduction in submitted portfolios;
(c)
the possible inclusion of mixed portfolios containing both cleared and uncleared transactions in the same PTRR exercise and the conditions under which such inclusion would be allowed;
(d)
requirements regarding the management of the PTRR exercise;
(e)
requirements for different types of PTRR services;
(f)
the process for monitoring the application of the exemption granted; and
(g)
the criteria to apply when assessing whether the clearing obligation is circumvented.
ESMA shall submit the draft regulatory technical standards referred to in the first subparagraph to the Commission by 25 December 2025.
Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.