European regulators plan to publish and submit rules for the clearing of OTC interest rate derivatives products to the European Commission next week.
The European Securities and Markets Authority (ESMA) has been working on reforming the swaps market in line with G-20 mandates, which sought to overhaul the market following the financial crisis.
Following a lengthy process of proposing new regulations and launching a market consultation period, ESMA is now set to pass on its final draft regulatory technical standards (RTS) on interest rate derivatives to the European Commission.
Five years after the G-20 meeting a Pittsburgh and almost two years after the intended deadline for these rules to come into force, the RTS submission will trigger a countdown to the rules becoming a reality for the asset class.
When ESMA submits the draft RTS next week, the Commission will then have three months to endorse it. Once it has then been published in the Official Journal of the EU, a phase-in period will kick-in throughout the continent for the market to comply with the sweeping new rules.
Once the rules have come into force, clearing members will have six months to meet the new interest rate rules, which will require the central clearing of the products.
Buy-side firms will have 18 months from the date of publication to meet the new rules, however this could be subject to change after a number of voices in the market called for a shorter phase-in period.
The International Swaps and Derivatives Association and the Futures Industry Association both requested the time to be shortened to nine months “to encourage these parties to establish clearing arrangements as soon as possible”.
ESMA launched the IRS consultation earlier this year, with all responses having to be submitted by 18 August. The consultation for credit default swaps (CDS) ends on 18 September.
OTC interest rate derivatives rules are set to come into force first due to the authorisation of central counterparties (CCP) that have been registered to clear the products.
Nasdaq OMX became the first CCP to be authorised under new rules on 18 March giving ESMA six months to come up with draft RTS standards and submit to the Commission.
LCH.Clearnet SA was the first OTC credit derivatives clearing house to be authorised on 22 May, meaning the CDS standards should be submitted around 22 November.