ESMA launches key derivatives consultation
The European Securities and
Markets Authority (ESMA), the watchdog responsible for the region’s securities
markets, has kicked off consultations for developing the technical standards
for new derivatives and short-selling regulations.
The derivatives consultation
followed the finalisation of the high-level rules of the European market
infrastructure regulation (EMIR) by the European Parliament and the Council of
the European Union on 9 February.
ESMA’s consultation on EMIR is split into
three parts. The first covers the clearing obligation for derivatives
currently traded over-the-counter and the risk mitigation required for
contracts that are not eligible for central clearing.
OTC derivatives will be
considered for clearing if they have a “direct, substantial and foreseeable effect within the
At the first
stage, central counterparties (CCPs) will need authorisation from their local
regulator to clear a class of OTC derivatives. The local authority will then
have to notify ESMA.
ESMA said it may
then adopt a more granular approach within the classes of derivatives
identified by CCPs.
For those swaps that are
deemed unsuitable for clearing, ESMA has asked for feedback on issues including
the timing of trade confirmations and portfolio reconciliation frequency.
In the second section of the consultation, ESMA has considered standards for
CCPs, which are based on the draft principles for market infrastructure defined
by the Committee on Payment and Settlement Systems and the International
Organisation of Securities Commissions. These include CCP recognition,
organisational requirements and record keeping.
The third part of the consultation has focused on trade repositories and how
information should be reported.
The deadline for responses to the consultation is 19 March. Before this
deadline, ESMA will also organise a public hearing, giving all stakeholders the
opportunity to air their views.
ESMA, along with the two other European supervisory authorities – the
European Banking Association (EBA) and the European Insurance and Occupational
Pensions Authority – will issue a further consultation on the rules they are
required to jointly draft. This will cover risk mitigation techniques for OTC derivatives that are not cleared by a
CCP, specifically capital requirements and exchange of collateral to cover the
exposures arising from those transactions and on operational processes for the
exchange of collateral. The EBA will also issue another paper on draft
regulatory technical standards on capital requirements for CCPs.
consultation has followed another ESMA paper earlier this week that consulted on
the delegated acts for short-selling regulation and aspects related to credit
The paper asked
for feedback on how credit default swaps should be used, thresholds for
reporting net short sales, thresholds for restrictions on short selling of
public debt and the handling of adverse events.
The short-selling and CDS consultation will run until 9 March, with a final report on the delegated acts scheduled for publication by mid-April.