Martin Merlin, director for financial markets in the directorate for internal market and services at the EC, said the grace period could be necessary because of the time it had taken for the European Securities and Markets Authority (ESMA) to assess foreign jurisdictions' governance regimes. "We are prioritising assessment of equivalence for foreign CCPs under Article 25 of Emir. We hope to adopt a first set of decisions within the coming weeks. Of course, this has involved a real investment of resources on our part, and it has taken rather longer than we anticipated. As a result of that, the commission is considering a further six-month extension of the deadline... in respect of the foreign CCPs who have not yet been able to obtain recognition by ESMA," said Merlin.
A transition period allowing banks to apply the rock-bottom risk-weight to CCPs that have yet to achieve QCCP status ends on December 2015, a date hardwired into the CRR. After this date, exposure weightings could jump tenfold to 20% or more, industry sources say – potentially making it uneconomic to clear at venues that lack QCCP status.
Merlin suggested differences between the EC and the Commodity Futures Trading Commission now rest on one major issue: margin rules. "The commission feels one important issue needs to be resolved, in relation to the margin methodology that EU CCPs and US DCOs are required to apply. A solution must be found that ensures we have high standards of risk management applied to both jurisdictions, and avoids a race to the bottom on price between the internationally active CCPs. We need to make sure these infrastructures are held to a single set of robust rules, based on a fair system of recognition and co-operation from both sides," he said. He suggested the IOSCO-administered Principles for Financial Market Infrastructures were insufficiently robust, and had been implemented to different standards by different jurisdictions, particularly in the area of initial margin calculations.
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