20 March 2012

FT: Clearing houses warn regulator over EMIR

European lawmakers' plans to strengthen the financial system may be undermined by proposals from regulators that "deviate significantly from current practice", the region's clearing houses have warned.

The European Association of CCP Clearing Houses (EACH), an umbrella group for Europe’s clearing houses, has cautioned that new rules that will define the regulation of over-the-counter derivatives and clearing houses may create more onerous and costly reporting requirements than anticipated by policy makers.

Politicians want to reduce counterparty and operational risks from opaque OTC derivatives markets by processing more trades through clearing houses. The European response to the mandate has been formed in the European Markets Infrastructure Regulation (EMIR), the region’s equivalent of parts of the US Dodd-Frank act. But it goes further in laying down a new regulatory framework for overseeing clearing houses across the EU. A clearing house stands between two parties, guaranteeing a trade if one party defaults.

ESMA, the pan-European markets regulator, has been charged with writing the final details, the technical definitions that will determine the structure of the market. But a tight year-end deadline means it has been forced to compress the consultation period on the technical standards into just over four weeks.

EACH, which speaks on behalf of 23 of the region’s clearing houses, warned ESMA’s proposals could threaten the competitiveness of companies like CME Clearing Europe, LCH.Clearnet, Eurex Clearing, ICE Clear Europe, NYSE Liffe and European Multilateral Clearing Facility.

It warned that if European standards were more onerous than global standards, the competitiveness of European clearing houses could be undermined by banks, investors and companies using jurisdictions that were both compliant and cheap. “CCPs in the EU may satisfy the safety but not the affordability tests, whereas those in other major financial jurisdictions may meet both tests”, EACH said.

EACH also warned ESMA about onerous levels of disclosure of information, and argued that CCPs should be allowed to determine disclosure of information without undermining client confidentiality.

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