03.19.2014

First CCP in Europe Authorized Under EMIR

03.19.2014
Terry Flanagan

Stockholm-based Nasdaq OMX Clearing has become the first central counterparty in Europe to be authorised as compliant with European Market Infrastructure Regulation, ahead of larger rivals.

Nasdaq said in a statement yesterday that the Swedish regulator has approved its application as a central counterparty under EMIR making it the first in Europe to be compliant with new regulations that require CCP clearing of over-the-counter derivatives, similar to the Dodd Frank regulation in the US.

The Nasdaq authorisation followed an opinion on March 12 2014 by a college of regulators and central banks from Denmark, Finland, Norway, Sweden, and the UK, as well as the European Central Bank and the European Securities and Markets Authority. The new status means that financial firms dealing Nasdaq OMX Clearing are subject to lower capital requirements than if they deal with non-authorised rivals.

The new license covers all products currently cleared by Nasdaq OMX Clearing, including equity, fixed income and commodity derivatives, traded on exchange as well as OTC. The Scandinavian business is the fourth largest derivatives clearing house in Europe, according to the exchange, and the second largest in the clearing of OTC interest rate swaps.

Patrick Young, executive director at DB Advisors, said in a newsletter: “The broader, worrying EMIR factor here is that Deutsche Borse didn’t make the cut through the college of regulators which raises a justifiable political issue. Presumably the Scandinavian CCP isn’t seen as a threat to the Eurozone whereas Deutsche Borse now have more ammunition to their case that the EU is out to get them.”

Deutsche Börse declined to comment.

Hans-Ole Jochumsen, executive vice president, transaction services Nordic at Nasdaq OMX, said in a statement: “As the first to be EMIR authorised, we can focus on further developing our offering, including an expansion within interest rate swaps and German power derivatives, as well as introducing clearing of foreign exchange products.”

This week the Bank of England issued its first annual report on UK securities settlement systems and CCPs since assuming responsibility for their supervision last April.

UK CCPs all have loss-allocation rules to manage a loss arising from clearing member default that exceeds their pre-funded default resources to prevent insolvency and ensure that CCPs considered ‘too important to fail’ do not assume support from taxpayers.

The Bank said: “UK CCPs have also started maintaining recovery plans and developing loss-allocation arrangements for non-default losses. The loss-allocation arrangements must be completed by May 2014 to meet UK rules.”

The report said the level of counterparty credit risk managed by UK CCPS, and consequently the amount of margin and other collateral they hold, is expected to increase when EMIR is implemented.

The Bank said: “It is not yet certain when the first clearing obligations will be implemented.”

Related articles

  1. Buy Side Forced to Review Collateral Arrangements

    As rates and volatility rise, the need to optimise the value of collateral is greater than ever.

  2. CEDX is planning to expand its range of products in 2023, subject to regulatory approvals.

  3. The CFTC regulated derivatives market and clearer was not included in FTX's bankruptcy filing.

  4. Schroders cleared NDF trades across a Asian and Latam currency pairs via Citi.

  5. The derivatives venue owned by FTX wanted to offer products that were not fully collateralized.