Which OTC derivatives must be centrally cleared, and by whom?

Article 4 applies two tests. The contract must belong to a class declared subject to the clearing obligation, and both parties must be in scope: each must be a financial counterparty above any clearing threshold, a non-financial counterparty above one (NFC+), or a third-country entity that would be caught if established in the EU. A counterparty that does not calculate its positions counts as above. Two third-country entities are caught only where the contract has a direct, substantial and foreseeable effect within the Union or clearing is needed to prevent evasion. If either party is out of scope, the trade need not be cleared, so a trade between an NFC+ and an NFC below the thresholds (NFC-) is not caught. The exam material lists the EU-effect test as a separate case; it applies only where both parties are outside the EU.

The exam material names two categories. Financial counterparties (FCs) are investment firms, credit institutions, insurers and reinsurers, UCITS and their management companies, occupational pension funds, AIFs and central securities depositories. A non-financial counterparty (NFC) is any other EU undertaking, apart from a CCP, that uses OTC derivatives.

Every 12 months a counterparty may calculate its month-end average position in OTC derivatives over the previous 12 months and compare it with the thresholds in Delegated Regulation (EU) No 149/2013, in gross notional: €1 billion each for credit and equity, €3 billion each for interest rate and FX, and €4 billion for commodity and other derivatives (raised from €3 billion on 29 November 2022). An FC counts its whole group's OTC derivatives, though a UCITS or AIF counts at fund level; an NFC counts its group's NFC trades, leaving out hedging. According to the exam material, the clearing obligation reaches EU firms' OTC contracts in five asset classes, from interest rates to commodities. Those are the threshold classes: all five count towards the thresholds, but only declared classes must be cleared.

A counterparty above a threshold, or that does not calculate, notifies ESMA and its competent authority immediately, sets up clearing within four months and then clears new trades in declared classes. An FC above any threshold clears every declared class; an NFC+ clears only the asset classes it exceeds, or all of them if it did not calculate. The exam material says firms inform ESMA and their competent authority both on crossing a threshold and on falling back below it; to leave the obligation, the Regulation requires the firm to show its competent authority that it is back below. The exam material names Refit's two headline changes: this way of deciding who must clear, and a way to suspend the obligation. Under Article 6a the Commission may suspend it at ESMA's request, three months at a time and 12 months at most.

Classes are chosen bottom-up (Article 5(2)), starting from classes a CCP has been authorised to clear, or top-down (Article 5(3)), where ESMA itself identifies classes that should be cleared although no CCP is yet authorised for them. ESMA weighs standardisation, liquidity and reliable pricing, and keeps a public register. Only two kinds of product have been declared: interest rate swaps (and, in some currencies, forward rate agreements) in euro, sterling, US dollars, yen, Norwegian krone, Polish zloty and Swedish krona, and untranched index credit default swaps on two European indices.

Clearing takes place at a CCP authorised under Article 14 or recognised under Article 25 and listed in ESMA's register for that class, as a clearing member, a client or indirectly. Since 24 December 2024, counterparties above a threshold in euro or zloty interest rate derivatives or euro short-term interest rate derivatives must also notify ESMA and their competent authority and, within six months, open an active account at an EU-authorised CCP. They clear a representative number of trades there, unless their notional clearing volume outstanding in these contracts is below €6 billion (client clearing does not count). They report to their competent authority every six months, on the last day of January and of July (Delegated Regulation (EU) 2026/305, Article 10). CySEC's Circular C792 applies these dates and asked the firms it supervises for a first report by 31 July 2026. The MiFIR trading obligation builds on this regime: see Where must derivatives be traded and cleared, and how is portfolio compression treated?

Intragroup trades are exempt if, among other conditions, both parties are fully consolidated with centralised risk procedures. EU group members notify their competent authorities at least 30 calendar days ahead, and the authorities may object; where one party is outside the EU, the EU party's authority must authorise the exemption. Since 24 December 2024 no equivalence decision is needed, but AML high-risk third countries (see How are high-risk third countries identified, and what is MONEYVAL?), countries on the EU list of non-cooperative tax jurisdictions and countries identified by the Commission are excluded. The exam material says intragroup trades are exempt 'pension funds included'. These were separate exemptions: the transitional one for EU pension schemes expired on 18 June 2023, and since 24 December 2024 only trades with third-country pension schemes exempt under their own law are carved out. Post-trade risk reduction trades and certain covered bond and securitisation hedges are also exempt.