The European Securities and Markets Authority (ESMA) is hoping to avoid a
repeat of the current row engulfing the Commodity Futures Trading Commission (CFTC) with a ban on bundled clearing and reporting of OTC
ESMA released guidance pertaining to
clearing and reporting services earlier this week, after receiving a
number of questions on the issue from market participants.
have clarified that central counterparties (CCPs) can offer a trade
reporting service, but they will not be able to oblige market
participants to only report their trades through a repository of their
choosing," Rodrigo Buenaventura, head of market division, ESMA, told
should mean Europe does not become embroiled in the same kind of quarrel
that has emerged in the US between the CME Group, which offers clearing
and reporting services for swaps, and the Depository Trust and Clearing
Corporation (DTCC), which operates a US swaps trade repository.
DTCC has threaten to sue to the CFTC after it approved the CME Group's
rule 1001, which stipulates that trades cleared through its CCP must
also be reported to its repository.
1001 will cripple market participant choice, is anti-competitive and
compromises regulators and market participants' ability to understand,
assess and manage systemic risk effectively," said DTCC general counsel
Larry Thompson, when the rule was approved earlier this month.
of interest rate swaps and credit derivatives began in the US for some
types of market participant on 31 December 2012. In Europe, trade
repositories can now begin seeking authorisation from ESMA after the
final sign-off of technical standards related to the European market
infrastructure regulation (EMIR) last Friday, with reporting obligations
likely to kick in after the summer.
also said ESMA would conduct an assessment into the likelihood of a
collateral shortfall prompted by cleared swap margin requirements, but
emphasised that this shouldn't be viewed as only a regulatory issue.
availability of collateral is clearly not just a regulatory issue and
it's not only related to EMIR," he said. "Monetary policy and the
issuance of collateral related to the economic cycle and market
evolution are also substantial factors that will determine how much
collateral will be available."
as the need for market participants to establish more formalised
initial and variation margin processes for standardised OTC derivatives
that need to be centrally cleared under EMIR, prudential capital
regulations like Basel III and European short-selling rules will also
require banks to find additional collateral to support potentially risky
"The optimal way to analyse
the availability of collateral is to look at the regulations and other
factors together and draw conclusions based on this," said Buenaventura.
"This is something that should be done together with other key
stakeholders prior to the introduction of the clearing obligation for
OTC derivatives next year and the bilateral margin requirements from
A full in-depth interview with Rodrigo Buenaventura will be published in the forthcoming Q1 2013 issue of The TRADE Derivatives.