ABBL
The ABBL proposes that only the most actively traded instruments, if fully standardised, may be eligible. Foreign Exchange shall be exempted, just as in the US and as currently proposed in the CPSS-IOSCO margin for non-centrally cleared OTC derivatives. An additional feature that the ABBL feels strongly about is that clearing should only become mandatory or forced when at the very least there are two Central Counterparties (CCPs) to clear a particular product or class of products, as they are called under EMIR. There are at least two reasons for this: firstly, EMIR as a regulation designed to handle systemic risk cannot rely on a single CCP. Secondly, it would create a problematic monopoly situation even though EMIR requires portability of accounts at CCP level; what would be the use of portability when there is no alternative?
Press release
Full response
ABI
The front loading requirement will come into effect from the date on which a clearing house is approved to clear a particular class of derivatives. The phase-in provisions will prove detrimental to late adopters as they will be required to backload all trades undertaken in the intervening period into clearing at a future date. This is likely to be complicated and costly for ABI's members as well as operationally challenging.
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AIMA
AIMA's response underlines its significant concerns in respect of the retroactive application of the clearing obligation, referred to as “frontloading”. Parties price cleared and non-cleared trades according to different assumptions, reflecting their different credit risk profiles and the requirements of the CCP that clears the product. Retroactive application of the clearing requirement would fundamentally change the pricing assumptions used in respect of bilateral transactions, such that ESMA would in effect confer an unfair financial advantage on one of the parties to the original trade. For this reason, AIMA strongly urges ESMA not to use its power to require frontloading.
Full response
EBF
The proposed two-pronged approach based on the definition of the classes in reliance on key characteristics combined with further, more detailed specifications to be applied on the level of the Public Register appears to be able to strike the right balance while providing for sufficient flexibility. In this context it will of course be essential that the definitions and more detailed specifications are always designed in such a way that it is guaranteed that only such transactions become subject to the clearing obligation for which clearing services are available for all market participants. Otherwise, the clearing obligation would effectively constitute a product prohibition.
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EFAMA
ESMA needs to amend the Guidelines in order to allow the European investment fund industry to continue to participate in the centrally cleared derivatives set by the EMIR regime.
Full response
GFMA Global FX Division
Given the global nature of the FX market, GFMA wishes to emphasise the importance in ensuring that the regulatory treatment of FX products in multiple, global jurisdictions remains consistent. GFMA covers, in particular in the response to Question 15, the detailed rationale behind the exemption to any central clearing obligation of deliverable OTC FX forwards and swaps by the US Department of Treasury and strongly recommends that ESMA follow a similar approach by not issuing a clearing obligation for such products.
Full response
Insurance Europe
Among its comments, Insurance Europe said it found liquidity to be of great importance when defining eligibility for clearing, and strongly recommended that ESMA consider liquidity as a key parameter in its approach.
Full response
ISDA/BBA
The associations called on the European Commission to exempt pension funds from frontloading obligations for OTC derivatives. They warned that lengthy frontloading periods would have a "detrimental" impact on the pricing of OTC contracts, which could in turn impact market participants, including pension funds.
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NAPF
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NAPF members require safe, liquid and effective derivative markets in order to help them manage their risks and achieve their ultimate goal, which is to pay retirement benefits to pensioners.
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Mandatory clearing should not be introduced for either inflation or interest rate swaps until live clearing offers are in place for both.
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The clearing obligation for foreign exchange derivatives should only be introduced once a UK or other European CCP has entered the market for clearing services. The same applies to commodity derivatives.
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Ideally, at least two CCPs should be available before central clearing is introduced for any specific asset class. This would help to ensure value for money through competition and would also reassure investors that they could switch to a different provider if necessary.
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See also responses from:
Original ESMA-consultation
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