Article 4 of EMIR imposes the clearing obligation on institutions which enter into or novate relevant derivatives contracts after the date when clearing starts to apply. Pre-effective dates derivatives do not have to be cleared – unless they are novated. So EU27 banks wanting to novate derivatives with UK counterparties have a problem – they will fall into clearing. The market had simply asked for all legacy swaps with UK counterparties to be exempt, but ESMA says that goes beyond its mandate. Instead therefore, yesterday it proposed amendments to certain delegated regulations which spell out the time from which clearing applies to a derivative, to create a 12 month window for trades to be novated to an EU27 counterparty without triggering the clearing obligation.