What is the primary objective of the European Market Infrastructure Regulation (EMIR)?

The primary objective of the European Market Infrastructure Regulation (EMIR) is to reduce systemic counterparty and operational risk in over-the-counter (OTC) derivatives markets. EMIR was introduced in response to the financial crisis to enhance the stability of the financial system by ensuring greater transparency and reducing risks associated with the trading of derivatives. It mandates that certain derivatives be cleared through central counterparties (CCPs), which help mitigate the risk of counterparty default. Additionally, EMIR sets out reporting requirements for derivative transactions to trade repositories, further improving market transparency.

This focus on reducing systemic risk is crucial, as OTC derivatives were identified as a significant contributing factor to the financial turmoil experienced during the crisis, largely due to the opacity and complexity of these instruments. Through its regulations, EMIR seeks to promote safer trading practices and overall market integrity, which is essential for the stability of the financial system.