General Question 2: Principal-to-principal model [Last update: 5 August 2013]
In a number of jurisdictions, the principal-to-principal model of OTC derivative client clearing involves the creation of a distinct legal contract between the clearing member and its client (a 'back-to-back contract’) in addition to the legal contract that exists between the CCP and the clearing member. The back-to-back contract exists in order to pass the legal and economic effects of the cleared transaction onto the client.
Where the back-to-back contract falls into the definition of an OTC derivative contract under Article 2 of EMIR then is the back-to-back contract an uncleared OTC derivative contract for the purposes of EMIR (e.g. subject itself to the clearing obligation or risk mitigation techniques)?
General Answer 2:
In those jurisdictions in which the principal-to-principal model exists, the back-to-back contract is an integral part of the overall principal-to-principal model of OTC derivative client clearing. While it is a distinct legal contract from that to which the CCP is a counterparty, it does comprise one leg of the overall client clearing arrangement and exists solely to pass the legal and economic effects of CCP clearing onto the client.