For OTC derivatives which are not cleared, EMIR stipulates that certain risk-mitigating actions shall be taken.
The following applies for both financial and non-financial counterparties:
- Exchange of confirmation with the counterparty – in writing or electronically
- Execution of portfolio reconciliation with the counterparty
- Agreement on routines with the counterparty for dispute resolution relating to trading in OTC derivatives
- Implementation of routines for compression of outstanding OTC derivatives, if exceeding 500 contracts with the same counterparty
Companies that exceed the clearing threshold, as well as financial counterparties, shall also conduct daily valuation of outstanding OTC contracts and daily exchange of collateral.