13 September 2013

SMSG Advice to ESMA on Discussion Paper – The Clearing Obligation under EMIR

According to SMSG, the RTS need to cater clear definitions to ensure legal certainty and leave sufficient flexibility to avoid circumvention of the clearing obligation, besides stipulating a short time frame for the introduction of additional derivatives into the clearing obligation.

Deviations from International Standards with respect to the clearing obligation should be carefully monitored and addressed when finalizing the regulatory technical standards. Differences in the application of the clearing obligation might create a competitive disadvantage for European market participantsas well as a higher administrative burden. The chosen approach of ESMA to strike the appropriate balance between the proposed key characteristic and other characteristics could lead to the envisioned results.

The SMSG welcomes the summary of the Clearing Obligation Procedure giving a clear indication on the time frame from the notification of a class of derivatives to ESMA until when the clearing obligation enters into force. The above is in particular to be seen in light of the already received notifications from 13 CCPs providing clearing services in Europe located in 9 countries.

These notifications contained all information that enables CCPs to clear the respective OTC derivatives already. Together with the information gathered through the current discussion paper ESMA will be in an excellent position to draft the regulatory technical standards as required under Article 5(2).

The SMSG supports the general approach ESMA has taken to define classes of OTC derivatives to be subject to the clearing obligation. The distinction between defined key characteristics and other characteristics of a class of derivatives will lead to a transparent process. The options outlined for the respective class of derivatives can add clarity and certainty to the Clearing Obligation Procedure.

The SMSG believes that the determination of a Clearing Obligation can be effective where there is only one CCP offering clearing in that class of derivatives and therefore does not see any need to wait for several CCPS to clear that class before imposing the obligation. EMIR only requires ESMA to consider whether more than one CCP clears a specific class of derivatives when determining phasing-in and SMSG strongly recommends ESMA not to diverge from this approach.

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