European CCPs Seek Regulatory Harmony
As EMIR moves to level 2, policies on clearing crystallize.
As legislation for mandatory clearing of most OTC derivatives contracts proceeds, European CCPs are engaging in an active dialogue with regulators on critical policy questions.
“CCPs, together with other affected market participants are invited by authorities like ESMA, or institutions like the EU Commission, to contribute to consultations and discussions, or to participate in working groups,” Marcus Zickwolff, chairman of the European Association of Central Counterparty Clearing Houses (EACH), told Markets Media.
EACH encourages the use of standardized products and services and supports measures to improve safety, integrity and efficiency of financial markets.
Although individual CCPs and associations like EACH have no direct role in the legislative and regulatory process, it is EACH’s objective to partner with policymakers and to ensure a constructive working relationship with supra-national European and global public authorities and global associations of clearing houses.
EACH develops positions on proposed European and global regulatory initiatives relative to central counterparty clearing especially on OTC derivatives.
EACH currently has 23 CCP members. Its aims are to discuss and analyze techniques in CCP operations, systems, position keeping, risk management, and legal and regulatory issues related to clearing.
The European Securities and Markets Authority (ESMA) will be responsible for the identification of contracts subject to the clearing obligation, while national competent authorities, in coordination with the college of supervisors, will be responsible for authorization and supervision of CCPs, except in the case of CCPs from third countries, which would have to be recognized by ESMA.
The extent to which EMIR will apply to firms that are based outside the EU is one of the more vexing issues facing regulators as they move to Level 2.
On a narrow interpretation of EMIR, a multinational entity would require a parent based in the EU in order to come within the scope of the legislation.
Authorities and institutions request expertise from market participants for various topics. As a result of consultations, these institutions gain a broad view and can form an opinion, helping them in the regulatory and legislative process they have to pursue.
For example, development of a global system for uniquely identifying counterparties to financial transactions is taking place through a coalition of industry service providers and international standard-setting bodies.
As the financial industry’s selected facilities manager for the project, Depository Trust & Clearing Corporation (DTCC) has responsibility for gathering, validating, storing and distributing various data on each legal entity. The other organizations involved include the International Organization for Standards (ISO), the Society for Worldwide Interbank Financial Telecommunication (SWIFT) and the Association of National Numbering Agencies (ANNA).
Phase 5 of the uncleared margin rules (UMR) took effect from September 2021.
Temporary equivalence is set to expire on June 30 2022.
IRS trading volumes have fragmented without an equivalence agreement.
Phase 5 of the uncleared margin rules came into effect on 1 September.
Triparty repos can be executed across U.S. Treasury securities to central clearing.