FN: Financial Stability Board warns on clearing access

25 February 2011

The Financial Stability Board has warned that global regulators must ensure there is fair and consistent access to derivatives clearing houses, amid growing tension regarding competition in the European clearing space.

The global financial watchdog – in a report to the Group of 20 economies published on Monday – warned that a failure among regulators to ensure fair and consistent access to derivatives clearing houses could lead to regulatory arbitrage and increased risk in the system. The report was published by the FSB to outline progress on the implementation of the G20 recommendations on strengthening financial stability, and includes an update on new rules that will see the majority of over-the-counter derivatives traded on exchange and forced through central clearing counterparties.

Major European exchanged-owned clearing houses include: Deutsche-Börse's Eurex Clearing; the London Stock Exchange's Italian clearing house CC&G; ICE Clear Europe; and CME Clearing Europe. NYSE Euronext, which has historically cleared through independent clearing house LCH Clearnet, is expected to clear through Deutsche Börse's Eurex Clearing, making for a mega-European derivatives clearing silo.

Dealers and trade execution platforms fear that new regulation outlined under both the Dodd-Frank legislation in the US and the European market infrastructure regulation may include loopholes that will allow exchange-owned clearing houses to deny rival exchanges or trading platforms access to their clearing houses.

The issue of clearing access has proved especially controversial in Europe where Brussels policy-makers are currently locked in a battle over a section of the Emir text, known as article five, which will largely determine limits on clearing house access in Europe.

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