The European market infrastructure regulation (EMIR), a package of new rules to reduce systemic risk in OTC derivatives trading, will not be finalised until the new year after authorities failed to agree key rules related to oversight of central counterparties (CCPs).
It had been hoped that the legislation, Europe’s response to the Group of 20’s pledge to bring OTC derivatives onto centrally cleared, exchange-like platforms, would be finalised, allowing regional watchdog the European Securities and Markets Authority (ESMA) to begin writing the accompanying technical standards in Q1 2012.
But a sticking point of yesterday’s ‘trialogue’ discussions was the authorisation procedure and supervision of clearing houses, in particular the role of ESMA. Under current proposals, ESMA will have responsibility for ensuring the consistent application of rules by national regulators, based on pre-defined criteria.
According to sources, an accord still needs to be reached to address national regulators’ concerns on the binding mediation role given to ESMA during and after the CCP authorisation process.
“It is understandable that this issue is being discussed at length between the institutions
– CCPs are truly systemic institutions,” said a spokesperson for the European Commission. “A problem in one CCP has possible implications for financial stability far beyond the member state that issues the authorisation. For this reason, we need appropriate safeguards in the text, and these are still being discussed.”
During trialogue meetings, the European Commission, European Parliament and Council of the European Union are required to reconcile separate versions of legislation they have individually agreed upon. The next meeting is scheduled for the last week of January, with a view to finalising the new rules soon after.
EMIR will require OTC derivatives to be standardised so that they can be traded on exchange and clearing via a central counterparty. The rules also contain real-time reporting requirements for swaps positions and increase the capital charges needed for bilaterally traded swaps.
The delay follows hold-ups in the US equivalent of EMIR, where rules for OTC derivatives have been folded into the Dodd-Frank Wall Street Reform and Consumer Protection Act. On 19 December, the Commodity Futures Trading Commission announced another delay in the effective date for the swaps rules it is currently devising.
Having already been delayed from an initial date of 16 July until 31 December, the latest delay would extend the deadline until 16 July 2012.
While there has been some progress on how swap execution facilities – new venues created by Dodd-Frank specifically for the trading of OTC derivatives – should operate, many rules, such as which instruments are suitable for exchange clearing and trading, are yet to be finalised.