European Market Infrastructure Regulation (EMIR) - Financial definition
Country
: European Union
Concise definition of the term European Market Infrastructure Regulation
The European Market Infrastructure Regulation (EMIR) is a regulatory framework established by the European Union to enhance the stability of the over-the-counter (OTC) derivatives market by imposing reporting, clearing, and risk mitigation requirements on financial institutions. EMIR aims to increase transparency and reduce systemic risks associated with derivatives trading.
Comprehensive definition of the term European Market Infrastructure Regulation
The European Market Infrastructure Regulation (EMIR) was introduced in response to the 2008 financial crisis, which highlighted the need for greater oversight in the derivatives markets. The regulation mandates that certain OTC derivatives transactions must be cleared through central counterparties (CCPs), thereby reducing counterparty risk. Additionally, EMIR requires firms to report their derivative contracts to trade repositories, improving market transparency and facilitating regulatory monitoring. Practical examples include banks and investment firms needing to comply with EMIR by central clearing specific interest rate and credit derivatives, ensuring that they use appropriate risk management techniques such as margin requirements. EMIR is critical in the context of the EU's broader financial stability agenda, as it aligns with global standards set by the Basel Committee and the G20.