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Now that European authorities have licensed two CCPs – Eurex and Nasdaq OMX – clients can expect to clear as soon as late 2014, and many are determined to be prepared well in advance of this momentous change in market infrastructure. "EMIR has started to move from an intellectual exercise to practical implementation with European clients starting every week. Sometimes it’s a handful of trades, sometimes it’s their whole flow, but in general there is a desire to get ahead of the curve, whereas in the US it was more last minute", said Andy Ross, head of European OTC clearing at Morgan Stanley.
Stockholm-based Nasdaq OMX started the countdown to European clearing when it received the green light from regulators in March. This triggered an ESMA consultation to determine which derivatives would be mandated for clearing based on a range of criteria, including liquidity and pricing. Participants expect these technical standards to be published within the coming weeks, at which point they must be approved by the European Parliament and Council of Ministers before finally being adopted by ESMA and implemented at the national level.
Uncertainty over the exact timing for clearing means this could take anywhere between nine and 16 months from when Nasdaq first received authorisation. Most participants appear to have taken a conservative view though, and are readying themselves for a December kick-off. "A lot of European clients – asset managers, pension funds – have structured internal processes and have identified a schedule leading up to clearing later this year. Most aren’t looking to clear ahead of time, but want to get requirements in place now and do one or two ceremonial trades", said Hester Serafini, head of EMEA OTC clearing at JP Morgan.
Meanwhile, the "front-loading" requirement – which forces swaps executed between the time a CCP is approved and when it goes online to be funnelled though clearing – has bedevilled swaps pricing. Despite updated guidance from ESMA, front-loading continues to be a thorn in the side of the dealer community, which was hoping for more comprehensive regulatory relief.