• Chapter 3 Chapter 3 Clearing, Reporting and Risk Mitigation of OTC Derivatives

    • 140. Commencement

      (1) The provisions of this Chapter 3 shall enter into force at such time as the Regulator shall appoint in Rules made by the Regulator. Different dates may be appointed for different provisions of this Chapter.
      (2) Such Rules may make transitional provision in relation to the entry into force of this Chapter 3.

    • 141. Clearing obligation

      (1) Counterparties shall clear all OTC Derivative Contracts pertaining to a class of OTC Derivatives that has been declared subject to the clearing obligation in accordance with section 142(1), if those contracts fulfil both of the following conditions —
      (a) they have been concluded in one of the following ways —
      (i) between two Financial Counterparties;
      (ii) between a Financial Counterparty and a Non-Financial Counterparty that meets the conditions referred to in section 147(1)(b);
      (iii) between two Non-Financial Counterparties that meet the conditions referred to in section 147(1)(b);
      (iv) between a Financial Counterparty or a Non-Financial Counterparty meeting the conditions referred to in section 147(1)(b) and an entity established in a jurisdiction outside the Abu Dhabi Global Market that would be subject to the clearing obligation if it were established in the Abu Dhabi Global Market; or
      (v) between two entities established in one or more jurisdictions outside the Abu Dhabi Global Market that would be subject to the clearing obligation if they were established in the Abu Dhabi Global Market, provided that the contract has a direct, substantial and foreseeable effect within the Abu Dhabi Global Market or where such an obligation is necessary or appropriate to prevent the evasion of any provisions of these Regulations; and
      (b) they are entered into or novated either —
      (i) on or after the date from which the clearing obligation takes effect; or
      (ii) on or after recognition as referred to in section 142(1) but before the date from which the clearing obligation takes effect if the contracts have a remaining maturity higher than the minimum remaining maturity determined by the Regulator in accordance with section 142(1)(c).
      (2) If a class of OTC Derivatives that has been previously declared subject to a clearing obligation in accordance with section 142(1) is no longer cleared by at least one Recognised Clearing House, it shall cease to be subject to the clearing obligation.
      (3) Without prejudice to risk-mitigation techniques under section 148, OTC Derivative Contracts that are Intragroup Transactions shall not be subject to the clearing obligation, provided that, at least 30 days before the use of the exemption, the counterparty or counterparties established in the Abu Dhabi Global Market have notified the Regulator in writing that they intend to make use of the exemption.
      (4) The OTC Derivative Contracts that are subject to the clearing obligation shall be cleared by a Recognised Clearing House. For that purpose a counterparty shall become a Clearing Member, a client, or shall establish indirect clearing arrangements with a Clearing Member, provided that those arrangements do not increase counterparty risk.
      (5) The Regulator may make Rules specifying the contracts that are considered to have a direct, substantial and foreseeable effect within the Abu Dhabi Global Market or the cases where it is necessary or appropriate to prevent the evasion of any provisions of these Regulations as referred to in subsection (1)(a)(v).

    • 142. Clearing obligation procedure

      (1) The Regulator may make Rules specifying —
      (a) a class of OTC Derivatives that shall be subject to the clearing obligation;
      (b) the date or dates from which the clearing obligation takes effect in respect of such class of OTC Derivatives, including any phase-in and the categories of counterparties to which the obligation applies; and
      (c) the minimum remaining maturity of the OTC Derivative Contracts referred to in section 141(1)(b)(ii).
      (2) With the overarching aim of reducing systemic risk, the Regulator may take into consideration the following criteria —
      (a) the degree of standardisation of the contractual terms and operational processes of the relevant class of OTC Derivatives;
      (b) the volume and liquidity of the relevant class of OTC Derivatives;
      (c) the availability of fair, reliable and generally accepted pricing information in the relevant class of OTC Derivatives;
      (d) the interconnectedness between counterparties using the relevant classes of OTC Derivatives;
      (e) the anticipated impact on the levels of Counterparty Credit Risk between counterparties;
      (f) the impact on competition in the Abu Dhabi Global Market;
      (g) the expected volume of the relevant class of OTC Derivatives;
      (h) whether more than one Recognised Clearing House already clears the same class of OTC Derivatives;
      (i) the ability of the relevant Recognised Clearing Houses to handle the expected volume and to manage the risk arising from the Clearing of the relevant class of OTC Derivatives;
      (j) the type and number of counterparties active, and expected to be active within the market for the relevant class of OTC Derivatives;
      (k) the amount of time a counterparty subject to the clearing obligation needs in order to put in place arrangements to clear its OTC Derivative Contracts through a Recognised Clearing House; and
      (l) the risk management and the legal and operational capacity of the range of counterparties that are active in the market for the relevant class of OTC Derivatives and that would fall within the scope of the clearing obligation.

    • 143. Access to a Recognised Clearing House in relation to OTC Derivative Contracts

      (1) A Recognised Clearing House that has been authorised to clear OTC Derivative Contracts shall accept clearing such contracts on a non-discriminatory and transparent basis, regardless of the trading venue.
      (2) A Recognised Clearing House may require that a trading venue comply with the operational and technical requirements established by the Recognised Clearing House, including the risk-management requirements.
      (3) A Recognised Clearing House shall accede to or refuse a formal request for access by a trading venue within three months of such a request.
      (4) Where a Recognised Clearing House refuses access under subsection (3), it shall provide the trading venue with full reasons for such refusal.
      (5) Save where the competent authority of the trading venue and that of the Recognised Clearing House refuse access, the Recognised Clearing House shall, subject to subsection (6), grant access within three months of a decision acceding to the trading venue's formal request in accordance with subsection (3).
      (6) The competent authority of the trading venue and that of the Recognised Clearing House may refuse access to the Recognised Clearing House following a formal request by the trading venue only where such access would threaten the smooth and orderly functioning of the markets or would adversely affect systemic risk.
      Amended on (21 February 2018).

    • 144. Access to a trading venue in relation to OTC Derivative Contracts

      (1) A trading venue shall provide trade feeds on a non-discriminatory and transparent basis to any Recognised Clearing House that has been authorised to clear OTC Derivative Contracts traded on that trading venue upon request by the Recognised Clearing House.
      (2) Where a request to access a trading venue has been formally submitted to a trading venue by a Recognised Clearing House, the trading venue shall respond to the Recognised Clearing House within three months.
      (3) Where access is refused by a trading venue, it shall notify the Recognised Clearing House accordingly, providing full reasons.
      (4) Without prejudice to the decision by competent authorities of the trading venue and of the Recognised Clearing House, access shall be made possible by the trading venue within three months of a positive response to a request for access.
      (5) Access of the Recognised Clearing House to the trading venue shall be granted only where such access would not require interoperability or threaten the smooth and orderly functioning of markets in particular due to liquidity fragmentation and the trading venue has put in place adequate mechanisms to prevent such fragmentation.
      Amended on (21 February 2018).

    • 145. Public register

      (1) The Regulator shall establish, maintain and keep up to date on its website a public register in order to identify the classes of OTC Derivatives subject to the clearing obligation.
      (2) The register shall include —
      (a) the classes of OTC Derivatives that are or will be subject to the clearing obligation;
      (b) the dates from which the clearing obligation takes effect, including any phased-in implementation;
      (c) the classes of OTC Derivatives identified by the Regulator that will be subject to the clearing obligation; and
      (d) the minimum remaining maturity of the Derivative Contracts referred to in section 141(1)(b)(ii).

    • 146. Reporting obligation

      (1) Taking effect as from such date as is specified by the Regulator, Counterparties and Recognised Clearing Houses established in the Abu Dhabi Global Market shall ensure that the details of any OTC Derivative Contract they have concluded and any modification or termination of the contract are reported to a Trade Repository registered with the Regulator. The details shall be reported no later than the Business Day following the conclusion, modification or termination of the contract.
      (2) A counterparty or a Recognised Clearing House which is subject to the reporting obligation in subsection (1) may delegate the reporting of the details of the OTC Derivative Contract. Counterparties and Recognised Clearing Houses shall ensure that the details of their OTC Derivative Contracts are reported without duplication.
      (3) Counterparties shall keep a record of any OTC Derivative Contract they have concluded and any modification for at least five years following the termination of the contract.
      (4) Where a Trade Repository is not available to record the details of an OTC Derivative Contract which is subject to the reporting obligation in subsection (1), counterparties and Recognised Clearing Houses shall ensure that such details are reported to the Regulator.
      (5) A counterparty or a Recognised Clearing House that reports the details of an OTC Derivative Contract to a Trade Repository or to the Regulator, or an entity that reports such details on behalf of a counterparty or a Recognised Clearing House shall not be considered in breach of any restriction on disclosure of information imposed by that contract or by any enactment or subordinate legislation. No liability resulting from that disclosure shall lie with the reporting entity or its officers, agents or employees.
      (6) The Regulator may make Rules specifying the details, type, format, frequency and reporting deadlines of the reports for the different classes of OTC Derivatives. The reports shall specify at least —
      (a) the parties to the OTC Derivative Contract and, where different, the beneficiary of the rights and obligations arising from it; and
      (b) the main characteristics of the OTC Derivative Contracts, including their type, underlying maturity, notional value, price, and settlement date.

    • 147. Non-Financial counterparties

      (1) Where a Non-Financial Counterparty takes positions in OTC Derivative Contracts and those positions exceed the Clearing threshold as specified under subsection (3), that Non-Financial Counterparty shall —
      (a) immediately notify the Regulator;
      (b) become subject to the clearing obligation for future contracts if the rolling average position over 30 Business Days exceeds the threshold; and
      (c) clear all relevant future contracts within four months of becoming subject to the clearing obligation.
      (2) A Non-Financial Counterparty that has become subject to the clearing obligation in accordance with subsection (1)(b) and that subsequently demonstrates to the Regulator that its rolling average position over 30 Business Days does not exceed the clearing threshold, shall no longer be subject to the clearing obligation.
      (3) In calculating the positions referred to in subsection (1), the Non-Financial Counterparty shall include all the OTC Derivative Contracts entered into by the Non-Financial Counterparty or by other non-financial entities within the Group to which the Non-Financial Counterparty belongs, which are not objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of the Non-Financial Counterparty or of that Group.
      (4) The Regulator may make Rules specifying —
      (a) criteria for establishing which OTC Derivative Contracts are objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity referred to in subsection (3); and
      (b) values of the clearing thresholds, which are determined taking into account the systemic relevance of the sum of net positions and exposures per counterparty and per class of OTC Derivatives.

    • 148. Risk-mitigation techniques for OTC Derivative Contracts not cleared by a Recognised Clearing House

      (1) Financial Counterparties and Non-Financial Counterparties that enter into an OTC Derivative Contract not cleared by a Recognised Clearing House, shall ensure, exercising due diligence, that appropriate procedures and arrangements are in place to measure, monitor and mitigate operational risk and Counterparty Credit Risk, including at least —
      (a) the timely confirmation, where available, by electronic means, of the terms of the relevant OTC Derivative Contract; and
      (b) formalised processes which are robust, resilient and auditable in order to reconcile portfolios, to manage the associated risk and to identify disputes between parties early and resolve them, and to monitor the value of outstanding contracts.
      (2) Taking effect as from such date as is specified by the Regulator, Financial Counterparties and Non-Financial Counterparties referred to in section 147 shall mark to market on a daily basis the value of outstanding contracts. Where market conditions prevent marking to market, reliable and prudent marking-to-model shall be used.
      (3) Taking effect as from such date as is specified by the Regulator, Financial Counterparties shall have risk management procedures that require the timely, accurate and appropriately segregated exchange of collateral with respect to OTC Derivative Contracts. Non-Financial Counterparties referred to in section 147 shall have risk management procedures that require the timely, accurate and appropriately segregated exchange of collateral with respect to OTC Derivative Contracts that are entered into on or after the clearing threshold is exceeded.
      (4) Taking effect as from such date as is specified by the Regulator, Financial Counterparties shall hold an appropriate and proportionate amount of capital to manage the risk not covered by appropriate exchange of collateral.
      (5) The requirement laid down in subsection (3) shall not apply to an Intragroup Transaction that is entered into by counterparties which are both established in the Abu Dhabi Global Market provided that there is no current or foreseen practical or legal impediment to the prompt transfer of own funds or repayment of liabilities between counterparties.
      (6) An Intragroup Transaction that is entered into by a counterparty which is established in the Abu Dhabi Global Market and a counterparty which is established outside the Abu Dhabi Global Market shall be exempt from the requirement laid down in subsection (3), provided that the following conditions are fulfilled —
      (a) the risk management procedures of the counterparties are adequately sound, robust and consistent with the level of complexity of the derivative transaction; and
      (b) there is no current or foreseen practical or legal impediment to the prompt transfer of own funds or repayment of liabilities between the counterparties.
      (7) The counterparty of an Intragroup Transaction that is exempt from the requirement laid down in subsection (3) shall publicly disclose information on the exemption.
      (8) The obligations set out in subsections (1) to (7) shall apply to OTC Derivative Contracts entered into between Non-Abu Dhabi Global Market Firms that would be subject to those obligations if they were established in the Abu Dhabi Global Market, provided that those contracts have a direct, substantial and foreseeable effect within the Abu Dhabi Global Market or where such obligation is necessary or appropriate to prevent the evasion of any provision of these Regulations.
      (9) The Regulator shall regularly monitor the activity in OTC Derivatives not eligible for Clearing in order to identify cases where a particular Class of Derivatives may pose systemic risk and to prevent regulatory arbitrage between cleared and non-cleared derivative transactions.
      (10) The Regulator may make Rules specifying —
      (a) the procedures and arrangements referred to in subsection (1);
      (b) the market conditions that prevent marking to market and the criteria for using marking-to-model referred to in subsection (2);
      (c) the risk management procedures, including the levels and type of collateral and segregation arrangements, required for compliance with subsection (3);
      (d) the applicable criteria referred to in subsections (5) and (6) including in particular what should be considered as practical or legal impediment to the prompt transfer of own funds and repayment of liabilities between the counterparties;
      (e) the details of the information on exempt Intragroup Transactions referred to in subsection (7);
      (f) the contracts that are considered to have a direct, substantial and foreseeable effect within the Abu Dhabi Global Market or the cases where it is necessary or appropriate to prevent the evasion of any provision of these Regulations as referred to in subsection (8); and
      (g) the dates on which the provisions in this section come into effect.