Post-Trade Risk Reduction Services (PTRR) under EMIR 3.0 and the MiFIR Review – Overview & New Obligations
- RA Dr. Hendrik Müller-Lankow, LL.M. (UCL)
- Sep 16
- 6 min read
New EU Rules on PTRR Services: How EMIR 3.0 and MiFIR Are Changing – Opportunities and Obligations for Market Participants in the OTC Derivatives Market.
Post-trade risk reduction services (PTRR services) are provided by third-party providers to market participants to help them reduce the operational and counterparty risks associated with outstanding over-the-counter (OTC) derivative transactions. Given the vast number of derivative contracts subject to PTRR services, the European legislator has subjected PTRR to specific requirements. This article provides an overview of the changes arising from EMIR 3.0 and the MiFIR review.
1. Types of PTRR Services and Their Benefits
The main PTRR services include portfolio compression, counterparty risk reduction (also referred to as counterparty rebalancing), and basis risk optimisation.
Definition portfolio compression
Portfolio compression refers to a process in which multiple existing derivative transactions between the same or several counterparties are consolidated, terminated, or adjusted in order to reduce the number of transactions and the outstanding notional amount, without materially changing the market risk position. Source: IOSCO, Final Report on Post Trade Risk Reduction Services, FR/10/2024, pages 11 and 12.
Definition counterparty risk reduction
Counterparty risk optimisation helps market participants reduce counterparty exposures without altering their overall market risk. Unlike portfolio compression, it does not lower trade numbers or notional amounts, but may create additional trades to redistribute risk among participants. Using submitted portfolios, service providers run algorithms that propose offsetting transactions to minimise counterparty risk and initial margin requirements. The process is only effective if all counterparties agree to the proposed trades. Source: IOSCO, Final Report on Post Trade Risk Reduction Services, FR/10/2024, page 12.
Definition basis risk optimisation
Basis risk optimisation primarily covers trade confirmations, documentation, valuations, and dispute resolution procedures. Source: IOSCO, Final Report on Post Trade Risk Reduction Services, FR/10/2024, page 8.
The benefits of PTRR services are manifold. First and foremost, they reduce the operational and counterparty risks of the derivatives portfolio. In turn, this can lower the overall initial margin (IM) requirements as well as the capital requirements under the CRR, thereby freeing up operational and regulatory capital.
The European legislator regards PTRR services as a valuable tool to enhance the resilience of the OTC derivatives market (Recital 10 of Regulation (EU) 2024/2987).
2. EMIR 3.0: Changes for Counterparties to Derivative Contracts
The amendment of Regulation (EU) No. 648/2012 (EMIR) by Regulation (EU) 2024/2987 (EMIR 3.0) entered into force largely on 24 December 2024.
As part of EMIR 3.0, a new Article 4b has been introduced into EMIR. Under this provision, derivative transactions resulting from PTRR are exempted from the clearing obligation. This is because PTRR providers have increasingly made use of complex financial instruments that are not subject to the clearing obligation, which, in the view of the EU legislator, has increased systemic risk in the financial system (Recital 10).
Why do PTRR providers not use derivatives subject to the clearing obligation?
PTRR providers do not use derivatives subject to the clearing obligation because this would undermine the very purpose of risk-reduction services. If risk-mitigating transactions were booked outside the relevant portfolio, they would not effectively reduce the counterparty credit risk within that portfolio. In short, clearing-obliged derivatives would weaken the risk-reduction effect of PTRR measures. Source: ISDA response to IOSCO consultation on Post Trade Risk Reduction Services, page 2.
The exemption from the clearing obligation under Article 4b(1) EMIR applies if the specific conditions set out in paragraphs 2 to 4 are met by both the PTRR service provider and the participants in the PTRR transaction. The detailed requirements are to be set out in RTS, expected in Q1 2026.
In principle, a PTRR provider does not necessarily require a regulatory licence or authorisation to carry out PTRR services. It is therefore noteworthy that Article 4b(3)(b) EMIR stipulates that, in order for market participants to benefit from the clearing exemption, the PTRR exercise must be conducted by an investment firm authorised under MiFID. In practice, this ensures that national supervisory authorities retain regulatory oversight over PTRR providers.
3. MiFIR Review: Changes for Providers of PTRR Services
The MiFID/MiFIR review introduced a number of amendments to MiFID and MiFIR. The amendments to MiFID were made by Directive (EU) 2024/790, which must be transposed into national law by 29 September 2025. Amendments to MiFIR, which is directly applicable, were introduced by Regulation (EU) 2024/791 and have been in force since 28 March 2024.
Following the entry into force of these Level-1 acts, ESMA launched an extensive consultation process to prepare the necessary adjustments to the Level-2 legislation.
The MiFID/MiFIR review also includes amendments to the existing rules on portfolio compression. These concern both Article 31 MiFIR and the relevant provisions in Chapter IV of Delegated Regulation (EU) 2017/567.
a) Extension of Article 31 MiFIR to Additional PTRR Services
Article 31 MiFIR in its original version only contained provisions on portfolio compression. However, since portfolio compression is merely a subcategory of the various PTRR services (Recital 35 of Regulation (EU) 2024/791), the European legislator broadened Article 31 MiFIR as part of the MiFIR review. Since then, the provision has referred more generally to “post-trade risk reduction services.”
In the draft of the new Article 16a of Delegated Regulation (EU) 2017/567, the European Commission specifies that post-trade risk reduction services within the meaning of Article 31 MiFIR include portfolio compression, counterparty risk optimisation, and basis risk optimisation services (see the definitions set out above).
The draft regulation also contains a general definition of PTRR services:
For the purposes of Article 31(1) of Regulation (EU) No 600/2014, post-trade risk reduction services are services that meet all the following conditions: (a) they are provided by a third-party service provider through the use of an algorithm on all or nothing basis; (b) they achieve a reduction of risk in each derivatives portfolio submitted to the post-trade risk reduction exercise by the counterparties to the derivative transactions; (c) they are market-risk neutral; (d) where new derivatives transactions result from a post-trade risk reduction exercise, they do not contribute to price formation.
b) Wegfall der Veröffentlichungspflicht von Portfoliokomprimierungen
Until the entry into force of the MiFIR review, investment firms and market operators carrying out portfolio compression were, under Article 31(2) MiFIR (old version), required to publish through an APA (approved publication arrangement) the volume of transactions subject to portfolio compression and the timing of their execution as close to real time as technically possible (and no later than T+1). This obligation has now been removed.
Until its removal, Article 18 of Delegated Regulation (EU) 2017/567 laid down the detailed publication requirements. Although the provision formally remains in force, its legal basis has disappeared due to the deletion of Article 31(2) and Article 31(4)(b) MiFIR (old version), and it is therefore no longer applicable. The European Commission’s draft amendment to Delegated Regulation (EU) 2017/567 already provides for the deletion of Article 18.
c) Specific Requirements for Portfolio Compression
Where a PTRR provider falling within the scope of Article 31 MiFIR performs portfolio compression, Article 17 of Delegated Regulation (EU) 2017/567 sets out specific requirements. These requirements remain in force even after the MiFIR review. By contrast, the draft amendment to Delegated Regulation (EU) 2017/567 does not introduce additional requirements for other forms of PTRR services, such as counterparty risk optimisation or basis risk optimisation.
However, practical requirements arise from Article 4b(3) and (4) EMIR, which must be met if the exemption from the clearing obligation is to be relied upon.
d) Exemptions from Transparency Requirements, Trading Obligation and Best Execution
The exemptions laid down in Article 31(1) MiFIR from the obligations relating to pre- and post-trade transparency, the trading obligation for certain transactions, and the requirement to achieve best execution of client orders remain in place.
With regard to transparency obligations, only the exemption for systematic internalisers (SIs) from OTC pre-trade transparency (Article 18 MiFIR, old version) has been removed. However, this is purely technical in nature, since the corresponding OTC pre-trade transparency requirement was abolished altogether as part of the MiFIR review.
4. Let’s Talk About Post-Trade Risk Reduction Services
Contact us if you require legal advice on the implementation of MiFIR or EMIR requirements. Your contact: Hendrik Müller-Lankow.
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