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Authors

Jeremmy Okonjo

Abstract

The enactment of extraterritorial national legislation has traditionally elicited debate on its legitimacy, efficacy and enforceability. Since the 2007-2009 global financial crisis, some legislative jurisdictions, including the EU and the US, have increasingly enacted extraterritorial financial markets regulations to contain global systemic risk. More specifically, in response to the G20 Council of Ministers’ resolve to reform national and international over-the-counter (OTC) derivatives markets regulations, the EU has enacted the European Market Infrastructure Regulations (EMIR), which seeks to contain systemic risk, counterparty risk, and make the OTC derivatives markets more transparent. EMIR is extraterritorial to the extent that it imposes obligations on non- EU (third country) contract counter-parties, central counterparties (CCPs), trade repositories, and OTC derivatives market regulators. The extraterritoriality of EMIR, alongside the US enactment of the US Dodd-Frank Wall Street Reform and Consumer Protection Act (DoddFrank Act), has drawn contradictory commentaries. EU policy makers and legislators justify extraterritoriality on the basis of the need to protect EU derivatives markets from systemic risk and regulatory arbitrage. On the other hand, third country derivatives markets regulators, policy makers and market players, especially in emerging markets, argue that EMIR will have adverse effects on the stability and development of their derivatives markets. This paper explores three closely-related research questions. First, what is the regulatory logic and methodology of EMIR’s extraterritorial provisions? Secondly, is the regulatory impact of these provisions proportionate as against third country emerging markets? Lastly, how can extraterritorial financial legislation by the EU be adapted to ensure both financial stability and the development of OTC derivatives markets in emerging economies? In exploring the above questions, this paper examines the extraterritorial provisions of EMIR from the perspective of the international law doctrine of proportionality.

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