Buy-side firms will have until 2016 before being subject to mandatory central clearing rules surrounding certain OTC derivatives, under new rules from the European Securities and Markets Authority (ESMA).
The regulator has suggested the new timeline in its consultation papers on draft regulatory technical standards (RTS) for the clearing of interest rate swaps (IRS) and credit default swaps (CDS).
Dividing firms up into three categories, ESMA has recommended non-clearing firms be given 18 months after the entry into force of the RTS, before having to comply with the clearing obligation.
Category one captures clearing firms who will be subject to the new rules six months after the RTS is finalised, while non-financial firms will be given a relief period of three years.
“Category 2 is probably by design the most heterogeneous one in terms of types of counterparties, ESMA is proposing to set a date of application for this group that provides sufficient flexibility for all counterparties including those who are less active in the market and whose legal and operational capacities are less sophisticated,” highlighted ESMA in the consultation.
“Having also in mind the objective of providing sufficient time between two categories of counterparties to start clearing, ESMA is proposing to set the date of application for Category 2 at eighteen months from the entry into force of the RTS on the clearing obligation.”
The final rules are set to be published later this year following the IRS and CDS consultation periods, which end on 18 August and 18 September, respectively.
ESMA has said it will use the answers received to draft the final standards before it sends them to the European Commission.
The rules follow a similar pattern to the US implementation through the three-stage phase-in, albeit coming into force around three years later.
The US got a head start on implementing mandatory clearing of OTC trades in line with G20 requirements following the financial crisis.
Europe has already introduced trade reporting requirements, however is still in the process of introducing the majority of its rules to ensure a safer and more transparent derivatives market.