23 March 2022

EBF feedback to the EC consultation on the review of the central clearing framework in the EU

The risks of serious market disruptions and complex practical, operational and legal challenges in case of a forced relocation, especially if extended to legacy positions, have been pointed out in several occasions.

EBF welcomes the extension of equivalence for UK CCPs until June 2025 and the EC’s consultation on the review of the clearing framework in the EU.

EBF would like to highlight that any forced relocation strategy or other coercive measures will not achieve, and would likely undermine, the objective of a competitive and resilient EU clearingas such strategy would, by definition, only capture EU market participants due to the territoriality of EMIR.

A forced relocation restricted to EU clearing market will:

• Separate EU markets from the more liquid international markets
• Create an EU self-isolated market, structurally illiquid and unbalanced (prevalence of one-directional positions). Besides, non-EU market participants will not have any incentive to move trading activities into the EU other than to benefit from arbitrage opportunities. EU entities will, in fact, be cut-off from international markets. Moreover, it will restrict EU entities’ ability to offer market making and client clearing to both their non-EU and EU clients will not be subjected to the EMIR clearing obligation: this would imply serious, far-reaching consequences on their own competitiveness and on the international competitiveness of EU capital market (more, rather than less reliance on 3rd country institutions).

The risks of serious market disruptions and complex practical, operational and legal challenges in case of a forced relocation, especially if extended to legacy positions, have been pointed out in several occasions (see also below).

The following measures have similar effects and contravene the stated objective of increasing the attractiveness/competitiveness of the EU clearing and capital market while also severely harming the international competitiveness of EU institutions:

• Punitive capital charges will not produce inflow of non-EU liquidity (in effect similar to forced relocation). It will however significantly weaken the attractiveness and competitiveness of EU clearing members.
• Reduction targets will have little impact and their calibration and fair implementation/monitoring will be very difficult.
• Any FRANDT additional requirements may create disincentive to offer/expand clearing services. The focus should lie on measures improving efficiency and the international competitiveness of the EU clearing offer and helping to attract non-EU liquidity as well as EU-liquidity, rather than creating coercive measures directed against EU entities and cutting-off their access to international markets.

We would consider any approach that harms the clearing infrastructure in favour of one particular CCP to be disproportionate. In this context we ask the European Commission to only consider measures that make clearing in the EU more attractive, without disproportionally undermining other market participants that are key to the fair and efficient provision of clearing services.

EBF

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