The European Securities and Markets Authority (ESMA) is meeting the European Commission and Members of the European Parliament to discuss the frontloading obligation this week.
Market participants have been seeking answers from the regulator on frontloading after it was recently triggered with the approval of the first central counterparty (CPP), Nasdaq OMX Clearing, last month.
The International Swaps and Derivatives Association (ISDA) and Futures Industry Association (FIA) Europe penned a joint letter to ESMA on the issue, calling for urgent guidance for the industry on the issue.
The frontloading obligation means eligible swaps entered into after March 18 – the day Nasdaq OMX Clearing received approval – may also need to be cleared once clearing rules kick-in, expected in 2015.
As a result, participants are left wondering how OTC contracts should be priced, as the cost may change when – and if – ESMA deems a particular product clearable in future.
FIA Europe CEO Simon Puleston Jones last week told theTRADEnews.com ESMA understands why frontloading is problematic, but the issue came down to politics.
He said the idea of setting a minimum remaining maturity had been raised, and could potentially be added to ESMA’s technical standards.
Following the approval of Nasdaq OMX Clearing, ESMA has up to six months to conduct a public consultation on clearing and submit draft technical standards to the European Commission for approval. The European Parliament and Council will then need to pass the clearing mandate.