04.04.2014
By Terry Flanagan

EuroCCP Gets EMIR Authorisation

EuroCCP, the European equities clearer, has become the second central counterparty to become authorised under the European Market Infrastructure Regulation allowing it to expand to new jurisdictions including Germany and France.

The European Securities and Markets Authority said in a statement that EuroCCP was authorised as a CCP under EMIR on 1 April following Nasdaq OMX Clearing, the Stockholm-based derivatives clearer, which was approved on 18 March 2014.

Diana Chan, chief executive of EuroCCP, told Markets Media: “The biggest change for us is that EMIR gives us a passport into new jurisdictions including France and Germany.”

Diana Chan, EuroCCP

Diana Chan, EuroCCP

Prior to the EMIR authorisation EuroCCP would have needed a banking license to clear equities in certain European markets.

“We can now clear for a German regulated platform, Equiduct, which is part of the Boerse Berlin Group,” added Chan.

Amsterdam-based EuroCCP was formed last December from the combination of the European Multilateral Clearing Facility in the Netherlands and European Central Counterparty Limited in the UK. It clears equities, exchange-trade funds and depositary receipts from 18 markets including the United States for 16 trading venues.

Chan has been pushing for for interoperability, or open access to clearing, in Europe so that investors are not forced to use the clearing house owned by the exchange where they execute trades.

“In Europe 43% of the equity market is traded on Bats Chi-X and Turquoise and cleared by three interoperating CCPs. However, 24% of equity trades are cleared by only one or two of the interoperating CCPs, said Chan. “We would like that 24% be cleared by all three interoperating CCPs.”

EuroCCP is equally owned by the stock exchanges Bats Chi-x Europe and Nasdaq OMX, ABN Amro Clearing Bank and The Depository Trust & Clearing Corporation in the US.

The revised Markets in Financial Instruments Directive had been expected to mandate open access to clearing but provisions allow exchanges operating vertical silos to block competition for up to five years, if approved by their national authority.

Chan added: ““The open access to clearing in MiFID II should be much more straight forward for equities than for derivatives. Derivatives are proprietary legal contracts which means exchanges want to protect their intellectual property and retain control over where they are cleared while equities are fungible no matter where they are traded.”

EuroCCP is the first equity clearer to be authorised under EMIR as Nasdaq OMX Clearing covers euro interest rate swaps as well as derivatives in Scandinavian and Nordic currencies.

ISDA, the derivatives trade association, has said that Nasdaq OMX Clearing’s authorisation has led to uncertainty which hampers risk management in the euro swaps market.

Under EMIR, CCPs have to load data for certain derivative trades between authorisation and the start of a clearing obligation for those products, but regulators have not yet specified which products fall under this requirement.

ISDA said that according to a time line published by Esma last year, the earliest a clearing mandate will come into effect after a CCP is authorised is nine months and the latest is 16 months. However the start date could be extended, particularly for less liquid products.

“Market participants had hoped regulators would provide further clarity on front-loading before the first CCPs were authorised,” added ISDA. “Without this guidance, derivatives users can’t be sure whether any single trade will ultimately be subject to front-loading or not. That’s why the approval of Nasdaq OMX came as such a shock.”

Unlike derivatives, equity trades settle in three days so EuroCCP does not have this front-loading issue.

“For EuroCCP it is business as usual as we have been clearing equities for the last seven years,” added Chan. “Our clients have the assurance that we have met all the EMIR requirements for safety, technology and financial performance.”

Featured image via DPC

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