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18 July 2018

BIS: Yves Mersch: Euro clearing - the open race

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Keynote speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Frankfurt Finance Summit, regarding importance of central counterparties (CCPs), new developments and current challenges and recent regulatory reforms.

The rising importance of CCPs means that their supervisory framework needs to be reformed. Most clearing is now done across borders and is strongly concentrated in a limited number of EU CCPs, which have become systemically important for the EU as a whole.

Two of these CCPs are based in the United Kingdom. Currently, they clear around 95% of euro-denominated interest rate derivatives and around 30% of euro-denominated repos. Thus, a significant disturbance involving a major UK CCP could affect financial stability and market functioning across the EU. On top of this, most of the liquidity provided by central banks tends to be channelled through the repo market.

The United Kingdom's withdrawal from the EU means the supervisory framework for non-EU countries must be adapted. EU authorities must continue to be able to not only closely monitor UK CCPs but ensure they comply with EU regulations.

It has become evident that disturbances affecting CCPs can have an impact on monetary policy, on payment systems and, ultimately, on price stability. The Commission's proposal to amend the EMIR framework is a step in the right direction as it reflects the responsibilities of the ECB - as a central bank of issue - in the supervisory framework.

However, there is also need to adjust the ECB's monetary policy toolkit to ensure it can fulfil its role. This requires amending Article 22 of the Statute in a manner that respects the principle of central bank independence and the ECB's exclusive competence for monetary policy. Moreover, any change to Article 22 must preserve the ECB's flexibility and autonomy to react to unforeseen circumstances and effectively address risks to its mandate.

Ultimately, amending both EMIR and Article 22 will establish a comprehensive legal framework to address the risks CCPs pose to the Union - both its financial markets and its currency. It will ensure that the EU's legislators, supervisors and central bank - acting in their respective roles - can adopt the wide range of measures needed to safeguard stability.

Mr Mersch concluded: “Let's make sure we don't waste this opportunity.”

Full speech

© BIS - Bank for International Settlements

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