EMIR 3 clearing thresholds: What ESMA's amendments mean for energy and commodity trading firms

Theme 1: EMIR 3 Clearing Threshold Methodology Change - From Aggregate OTC (cleared and uncleared) to only Uncleared OTC

EMIR 3 introduced a major change to how clearing thresholds are calculated. The pre-EMIR 3 regime required counterparties to calculate their aggregate month-end average position counting both cleared and uncleared OTC derivatives and compare that figure against the relevant CT.

EMIR 3 replaced this with a framework "primarily based on the level of OTC uncleared transactions", with the stated objective of "better recognising the benefits of clearing".

The FR confirms the existing EMIR 3 methodology whereby NFCs calculate only their uncleared OTC derivative positions to assess CT breach while hedging positions remain excluded.

Critically however, NFC position calculation shifts from group level to entity level. Previously, an NFC calculated its position by aggregating OTC derivatives across all NFCs within the same group. Under EMIR 3, each NFC assesses its own position individually.

FCs face a more complex CT threshold calculation. They must calculate both their uncleared OTC positions (to compare against uncleared CTs) and, separately, their aggregate cleared and uncleared positions for interest rate and credit derivatives (to compare against aggregate CTs). This aggregate threshold acts as a backstop to prevent FCs with large, uncleared portfolios from falling outside the clearing obligation.

For NFCs, the hedging exemption continues to apply. Page 10 notes:

NFCs will continue to benefit from an exemption for those contracts reducing risks directly relating to the commercial activity or treasury financing activity of the NFCs or of its group

The current pre-EMIR 3 methodology and CT levels remain in effect until the amended RTS enters into force.

The shift from group-level to entity-level NFC calculation is significant for energy groups with centralised trading structures e.g. one legal entity trading on behalf of multiple legal entities.

Previously, a central trading entity's OTC positions were counted alongside those of other NFCs in the group meaning the group's collective hedging programme largely determined threshold status. Under the new regime, each NFC entity is assessed individually based only on its own uncleared positions.

ESMA acknowledged, through consultation feedback, that the practical benefit of the entity-level shift is explicitly limited for NFCs that already centralise all OTC derivative trading in a single legal entity. Where an NFC group routes all trades through one entity, the theoretical benefit of disaggregating positions across multiple entities does not materialise. The full group notional effectively sits in one place, and the new methodology produces a result closely comparable to the old group approach for that entity.

Compliance Considerations

For energy groups that centralise OTC derivative execution in a single legal entity, the EMIR 3 entity-level methodology delivers only limited threshold relief because the central entity would likely already hold the majority of group positions.

For example, consider a group with three NFC entities: TradeCo (the central trading entity that executes all external OTC derivatives on behalf of the group), OpCo A, and OpCo B.

After applying the Article 10(1) hedging exemption, the residual uncleared non-hedging commodity derivative positions are:

• TradeCo EUR 3.7 billion external;
• OpCo A EUR 0.2 billion external;
• OpCo B EUR 0.1 billion external.

TradeCo also holds EUR 0.5 billion of intragroup derivative contracts with OpCo A e.g. risk-transfer positions that are not themselves hedges under Article 10(1) but do qualify for the intragroup clearing exemption under Article 4(2) of EMIR.

Under the pre-EMIR 3 group approach, the group calculates a combined position across all NFCs: EUR 3.7bn + EUR 0.2bn + EUR 0.1bn = EUR 4.0 billion at the commodity CT. The group is at the threshold and must begin clearing.

Under EMIR 3 entity-level assessment, each entity is assessed individually.

• TradeCo's external positions alone are EUR 3.7 billion and modestly below the EUR 4 billion threshold. This is the "limited benefit" ESMA acknowledged because TradeCo already held the overwhelming majority of group positions, removing the subsidiaries' EUR 0.3 billion from its calculation provides only marginal relief.
• OpCo A (EUR 0.2bn) and OpCo B (EUR 0.1bn) benefit substantially from entity-level treatment since they are well below the threshold when assessed independently, but this is of little consequence to TradeCo's own position.

The more consequential step is the Article 4(2) intragroup exclusion. The qualifying intragroup trades between TradeCo and OpCo A (EUR 0.5 billion) are excluded from TradeCo's CT calculation on this separate basis.

• TradeCo's final assessed position is EUR 3.7bn − EUR 0.5bn = EUR 3.2 billion which is EUR 0.8 billion below the threshold and a materially more comfortable position than the pre-EMIR 3 group total of EUR 4.0 billion suggested.

The key compliance action is to treat the Article 4(2) exclusion as a distinct step in the CT calculation process, separate from and cumulative with the Article 10(1) hedging exemption. Both bases for exclusion should be identified, documented, and maintained as part of the annual calculation record.

As a reminder, the hedging exemption remains available and continues to be applied on a group-wide basis for NFCs meaning hedges entered by an NFC for a group entity's commercial risk remain outside the threshold calculation. This is potentially important protection for energy firms with complex hedging programmes.

Theme 2: The New Clearing Threshold Values - What Changed and Why

The final proposed threshold values, as set out in Article 11a of the amended Delegated Regulation are as listed in the table below and consolidated from the FR across pages 19-34 under Section 2):

Final proposed threshold values (Article 11a)

For interest rate derivatives, ESMA's simulation analysis showed that the marginal effect of the uncleared CT i.e. FCs captured beyond those already covered by the EUR 3 billion aggregate - becomes negligible at EUR 2.2 billion. Setting the threshold below that level would bring in numerous additional counterparties without meaningfully increasing captured notional, and the final proposal therefore moved the interest rate uncleared CT from EUR 1.8 billion to EUR 2.2 billion.

A similar analysis applied to credit derivatives, where EUR 0.8 billion was identified as the point at which the uncleared CT adds no new FCs beyond those already covered by the EUR 1 billion aggregate threshold while maintaining comparable NFC coverage, moving the credit CT from EUR 0.7 billion to EUR 0.8 billion.

For equity and FX derivatives, simulations confirmed the CP proposals were appropriate at EUR 0.7 billion and EUR 3.0 billion respectively.

The commodity derivatives threshold is addressed separately below in Theme 3.

Theme 3: Commodity and Emission Allowance Derivatives - Clearing Threshold Considerations

Commodity derivatives attracted the most substantive consultation feedback. Respondents, primarily NFCs and energy market participants, opposed ESMA's initial EUR 3 billion uncleared threshold for four main reasons:

• Misalignment with current market conditions due to inflation and price volatility (with particular reference to energy markets);
• Failure to account for the growing use of virtual Power Purchase Agreements (vPPAs);
• Limited benefit from the entity-level methodology shift for NFCs that already centralise trading in a single legal entity; and
• Competitive disadvantage relative to third-country firms in jurisdictions with higher thresholds.

Respondents warned that a threshold set too low would "exacerbate liquidity strains", constrain the ability of energy firms to support renewable investments, and limit private investment into energy generation facilities (page 46). The majority proposed a minimum threshold of EUR 4 billion with some respondents suggesting EUR 7 billion or EUR 12 billion. One respondent flagged that a US equivalent 12-month rolling threshold of USD $8 billion applies, while Singapore and Australia offer thresholds of SGD $20 billion and AUD $100 billion respectively.

Consultation respondents explained the specific mechanism at work:

• Many energy firms had deliberately migrated positions from exchanges to OTC markets precisely to reduce cash margin pressure as exchange-cleared positions require daily variation margin in cash, while bilateral OTC positions allow for more flexible collateral arrangements;
• A CT set too low would push these firms back into mandatory clearing at exactly the moments when commodity prices are elevated i.e. when their notional OTC positions are largest. The result would be forced re-entry into clearing at the worst possible time, amplifying liquidity strains pro-cyclically;
• This exchange-to-OTC structural shift driven by liquidity management, not risk avoidance was a material consideration in ESMA's decision to lift the commodity CT above the CP proposal.

ESMA's simulation analysis (Table 13, paragraph 98 at page 31) demonstrated that the commodity CT is significantly less sensitive to threshold variation than other asset classes. Moving from EUR 2.9 billion to EUR 4 billion changes the captured FC population by only 4 firms and the NFC population by 1–2 entities. ESMA explicitly acknowledges on page 32 that "even a significant increase or decrease in the level of the uncleared thresholds does not seem to lead to any major changes in terms of coverage".

Against this backdrop, ESMA concluded: "considering these elements and given that the analysis shows a lower level of sensitivity to major variations of the CT, ESMA suggests setting the [uncleared commodity] thresholds at 4 billion EUR" and explicitly citing inflationary pressure, growing trading in new products, and international competitiveness as its justification.

CT Granularity for Additional Commodity Asset Classes. Recital 16 of EMIR 3 had invited ESMA to consider sub-thresholds by commodity sector (agriculture, energy, metals, etc.) or by ESG/crypto features. ESMA declined in each case. It noted that sub-asset class granularity would add operational burden without justified benefit, given that the new calculation methodology itself already represents a significant change for market participants (page 12). The feedback from virtually all respondents supported this approach.

CT Taxonomy changes - Commodity & Emission Allowance Derivatives. The taxonomy of the fifth CT bucket was also revised and will now cover "commodity and emission allowance derivatives" rather than the former "commodity and other derivatives", aligning with EMIR Refit reporting (page 34).

The EUR 4 billion figure aligns with the current EMIR 3 levels before the April 2025 CP which proposed EUR 3 billion, maintaining the status quo for most firms. This is a direct response to energy market consultation feedback.

Compliance Considerations

Firms that were previously close to the EUR 3 billion aggregate CT but remain below EUR 4 billion in uncleared commodity positions may find their classification unchanged. However, firms must still recalculate their respective CT positions under the new uncleared-only methodology to confirm this outcome.

The emission allowance derivative taxonomy change has a practical compliance implication in that emissions trading positions must now be tracked and calculated within the same bucket as commodity derivatives. For energy firms with significant EU ETS (Emissions Trading System) derivative positions, this requires confirming that EMIR Refit reporting correctly classifies those positions within the updated taxonomy.

The competitive disadvantage narrative that EU firms face a EUR 4 billion threshold while US competitors face a USD $8 billion equivalent and Singapore/Australia apply SGD $20 billion / AUD $100 billion respectively, remains unresolved. ESMA acknowledges the concern but cannot address it at Level 2. Firms operating in cross-border commodity derivative markets should flag this disparity in future EMIR Level 1 consultations.

Operational steps firms may wish to take include:

• Recalculate uncleared commodity and emission allowance derivative positions (as a combined bucket) at entity level under the new methodology and compare against the EUR 4 billion threshold.
• Confirm that EMIR Refit reporting correctly captures the cleared/uncleared distinction for all commodity and emission allowance positions.
• Assess whether emission allowance derivatives previously classified under a different bucket are now correctly consolidated within the commodity and emission allowance derivatives CT.
• Model scenarios where commodity price volatility inflates notional OTC positions and assess at what price levels the EUR 4 billion threshold would be breached without any change in underlying risk-taking behaviour.

Theme 4: Virtual PPAs, the Hedging Exemption, and ESMA's Limited Mandate to Modify

Section 3 of the FR addresses ESMA's mandate under Article 10(4)(a) of EMIR to specify the criteria for establishing which OTC contracts qualify for the hedging exemption. ESMA made a definitive statement in the FR proposing no change to the existing Article 10 of Delegated Regulation 149/2013 (page 36).

The April 2025 consultation generated 24 responses on this point:

• Seven supported ESMA's position of no change to Article 10; and
• The remaining 16 requested changes or clarifications.

Within those 16, the responses split into two distinct subject matters. The majority focused on vPPAs and proposed two legally distinct categories of remedy (addressed below) as Type 1 and Type 2.

A smaller number raised separate group-level clarifications on the hedging exemption and intragroup transaction treatment and addressed separately in the group hedging subsection below.

Virtual Power Purchase Agreements (vPPAs) – Implications for CT calculations under EMIR 3. Two legally distinct categories of proposed remedies were put forward on page 37 as follows:

• Type 1. Broaden "objectively reducing risks" for renewable energy NFC contracts. The first set of proposals sought to amend the hedging exemption directly by exempting any OTC derivative contract entered into by two NFCs in relation to the virtual supply or purchase of renewable energy and any associated attributes. This targeted intervention would have created a specific carve-out within the existing "objectively reducing risks" standard in the energy transition context.
• Type 2. Broaden the definition of "commercial activity" itself. The second more expansive category of proposals sought to redefine what counts as a firm's commercial activity to include trading in financial instruments and risk provisioning services to support counterparties. Under this approach, any derivative entered into by an energy firm as part of its commercial activity in nature would be eligible for the hedging exemption if it reduces risk for the firm or for its counterparty. Crucially, this formulation would also have captured additional derivative contracts entered into to mitigate risk arising from derivatives the NFC itself has already concluded. Type 2 would therefore not only have resolved the vPPA problem, it would have created a materially broader exemption framework for energy firms' derivative activities generally.

Both of the above were motivated by the same commercial reality in that under the current EMIR framework, vPPA activity counts towards the CT of the hedge provider, potentially triggering NFC+ requirements (given their propensity for being potentially large from a gross notional point of view) including margin exchange obligations, increasing costs, and creating competitive disadvantage against non-EU counterparties. Respondents argued that such hedging is provided by "energy market participants who could warehouse these risks without causing any systemic risk to the financial markets".

ESMA's response to industry feedback on vPPAs. ESMA noted that "the changes asked [for] by most respondents would go beyond ESMA's mandate" and it could not make any additional changes to the hedging exemption definition. Consequently, vPPAs are still included in the CT calculation and are not deemed risk reducing.

ESMA further noted that both approaches - whether narrowly targeted at vPPAs (Type 1) or broadly restructuring the commercial activity definition (Type 2) - "do not seem to be compatible with Article 10 of EMIR". It noted that some requests were effectively seeking a full exemption, and that full exemptions are a matter of Level 1 legislative scope, not Level 2 RTS.

ESMA acknowledged the competitiveness concern and the importance of vPPAs for green energy transition but characterised the fundamental issue as a "question for Level 1" thus deferring this hedging exemption request back to the European Commission and European Parliament under potential future legislative updates.

The proposal to upgrade the European Commission's Q&A on vPPAs into Delegated Regulation 149/2013 was also rejected. ESMA concluded this would not introduce the additional flexibility respondents sought, as the substance of the Q&A at Level 2 would not achieve the objective either (page 38).

Group hedging and intragroup transactions. ESMA also addressed two group-level clarification requests:

[1] Group Hedging Exemption. ESMA confirms that Article 10(1) of Delegated Regulation 149/2013 already clearly encompasses group-level hedging and thus no amendment is required:

An OTC derivative contract shall be objectively measurable as reducing risks directly relating to the commercial activity or treasury financing activity of the non-financial counterparty or of that group…" (paragraph 143, page 39)

[2] Intragroup Transactions. Respondents raised whether transactions between entities within the same group that are exempt from clearing under Article 4(2) of EMIR need to be included in the CT calculation. The FR confirms these intragroup transactions do not need to be included which is a distinct and separately valuable exclusion for energy firms with significant internal derivative activity (page 38).

Intragroup hedging transactions (transactions between entities within the same group that are exempt from clearing under Article 4(2) of EMIR) do not need to be included in the CT calculation” (paragraph 139, page 38)

The vPPA hedging recognition issue is the most commercially significant unresolved question in the FR for energy transition-focused trading firms. While ESMA is sympathetic to the industry argument, it clearly stated that it cannot act at Level 2 without a Level 1 legislative amendment.

Understanding which type of proposal is being advanced matters for future advocacy.

• Type 1 proposals (targeted vPPA carve-out within "objectively reducing risks") represent an incremental amendment that could potentially be achieved through a focused Level 1 revision to Article 10 of EMIR.
• Type 2 proposals (broadening "commercial activity" to include risk provisioning services and derivatives-on-derivatives) would require a more fundamental rearchitecting of the hedging exemption framework.

Energy firms and trade associations should be precise (and seek consensus and alignment) about which type of reform they are seeking when engaging with the European Commission on future EMIR reviews, as the legislative pathway and political difficulty of implied by each differ materially.

Energy firms structuring vPPAs as hedge providers must continue to manage the risk that vPPA activity counts towards their CT calculations. Until a Level 1 legislative change modifies the hedging exemption scope, vPPAs that do not meet the "objectively measurable as reducing risks" standard for the hedge provider remain within threshold calculations.

Firms should conduct a vPPA-by-vPPA review to assess whether any individual contract can be documented as meeting the existing hedging exemption criteria for the hedge provider, rather than assuming blanket exclusion.

On intragroup transactions, energy groups with significant internal derivative activity should separately assess the Article 4(2) exclusion. Where intragroup derivative transactions are exempt from clearing under Article 4(2) of EMIR, those transactions do not need to be included in the CT calculation which is a distinct exclusion which operates independently of the Article 10(1) group hedging exemption. Compliance teams should confirm that their CT calculation methodology correctly identifies and excludes qualifying intragroup transactions on both bases.

The EMIR 3 timing issue noted by ESMA i.e. that the growing importance of vPPAs could not be fully anticipated at the time of EMIR 3's conception suggests a future Level 1 review may address this. Firms and trade associations should prioritise this issue in any forthcoming EMIR review consultation.

Theme 5: Article 11b Trigger Mechanism to review CTs.

ESMA's mandate under Article 10(4)(c) of EMIR is to develop draft RTS specifying the mechanisms that trigger a review of CT values following "significant price fluctuations in the underlying class of OTC derivatives or a significant increase of financial stability risks" . The new Article 11b, as set out in both paragraph 163 and the final RTS text in Annex II, establishes five indicator categories:

1. Prices of the underlying of OTC credit, equity, interest rate, FX, commodity, and emission allowance derivatives;
2. Volatility of the prices of the underlying of each asset class;
3. The proportion of OTC derivative transactions, per asset class, that are cleared;
4. The proportion of entities clearing their OTC derivative transactions; and
5. The inflation rate, global financial conditions, and geopolitical and economic policy uncertainties.

The assessment of these indicators must be conducted at least once a year as noted in Annex II, Article 11b on page 56.

ESMA is clear that this mechanism supplements rather than replaces the existing two-year mandatory EMIR review cycle. A triggered review is not an emergency instrument - "a review triggered by such mechanism would never be a way to manage a sudden crisis… but more a means to facilitate the timely review of the CTs with regards to one or more fundamental and more long lasting changes in the market" (paragraph. 145).

On process design, ESMA deliberately rejected fixed quantitative triggers or exhaustive indicator lists. The cost-benefit analysis in Annex III summarises the rationale noting a purely quantitative approach could trigger "burdensome reviews of CTs… automatically and possibly too easily" while a qualitative indicator-based approach "should allow for flexibility in triggering a review of the CTs, which should warrant proportionality in the approach, based on the context" (Annex III, page 60).

The absence of fixed numerical triggers is a regulatory design choice by ESMA. ESMA retains qualitative discretion in assessing whether indicator movements meet the "significant change" standard. Commodity and emission allowance derivatives are explicitly covered in indicators (a) and (b) meaning natural gas, power, and ETS price movements and volatility are directly within scope of ESMA's annual monitoring.

The most effective internal monitoring approach tracks the same five indicator categories using publicly available data (commodity price indices, EMIR aggregate reporting data, inflation statistics, and financial stability indicators) and applies qualitative judgment to assess whether market conditions signal a plausible CT review scenario.

Indicators (c) and (d) - clearing proportion data - are derived from EMIR trade reports. Firms' own clearing decisions aggregate into system-level signals that ESMA monitors. A material shift in market-wide cleared versus uncleared proportions in commodity derivatives could itself be a trigger signal. EMIR reporting accuracy is therefore directly relevant to the trigger mechanism.

Theme 6: Implementation Timeline and Transition Flexibility

ESMA devotes specific attention to implementation guidance following requests from market participants for clarity on when the new calculation methodology must be applied starting at page 40.

The proposed RTS must be adopted by the European Commission (within three months of ESMA submission), then published in the Official Journal, before entering into force 20 days later as noted in Annex II, Article 2 and in the executive summary at page7.

The current pre-EMIR 3 positions calculation and CT levels continue applying until the amended RTS enters into force. Most counterparties currently conduct their annual position calculation in June, following the EMIR Refit implementation schedule established in 2019 (paragraph 117).

ESMA's guidance is structured around two scenarios.

• Where the RTS enters into force before the next June calculation period, firms may choose to recalculate based on the new methodology immediately upon RTS entry into force, or wait until the following June (paragraph 122).
• Where the RTS enters into force after the next June calculation period, firms may recalculate right after entry into force or wait until the subsequent June cycle (paragraph 122).

The policy rationale is stated explicitly: "with simplification and burden reduction objectives in mind, and thus with the aim to try and minimise changes to these procedures and/or IT systems, ESMA sees merit in aligning the calculation period of the CTs under the new methodology with the current one established following EMIR Refit" (paragraph 118).

ESMA also confirms that firms do not need to re-notify ESMA and NCAs if the results of their recalculation or status do not change - a clarification applicable even with the methodology change (paragraph 123).

If the Official Journal publication and 20-day entry into force follow in mid-2026, it remains possible that the RTS enters into force around or shortly after the standard June 2026 calculation period.

Firms should prepare their systems and calculation processes for the new uncleared-only, entity-level methodology now, so they are ready to apply it either (a) immediately if they wish to transition early once the RTS enters into force, or (b) in June 2027 if they choose to align with the subsequent calculation cycle.

The option to transition early provides a practical benefit for firms that believe their positions are better presented under the new methodology.

Operational steps firms may wish to take include:

• Prepare reporting infrastructure and calculation processes for the new uncleared-only, entity-level methodology now, and build two transition scenarios into your compliance plan: early adoption immediately upon RTS entry into force, or alignment with the June 2027 calculation cycle.
• Monitor European Commission progress on RTS adoption; the standard three-month adoption window means a potential entry-into-force date in the May to August 2026 timeframe.
• For firms whose positions fall below the new uncleared CT but above the current aggregate CT, prepare to recalculate as early as possible after RTS entry into force and update NFC status monitoring frameworks to reflect the entity-level, uncleared-only calculation as the operative methodology going forward.