Industry welcomes cross-border discussions on CCPs

Inter-region dialogue is vital to ensuring cross-border derivatives regulation does not stifle Asian markets, according to industry leaders.

Inter-region dialogue is vital to ensuring cross-border derivatives regulation does not stifle Asian markets, according to industry leaders.

Recently, the Asia Pacific Regional Committee (APRC) of theInternational Organisation of Securities Commissions (IOSCO) wrote to the European Union, calling on legislators and regulators to give Asian clearing counterparties some breathing space.

The letter discussed equivalence to European market infrastructure regulation (EMIR) and said that the European Securities and Markets Authority's (ESMA) equivalence judgements may not be fully appropriate to Asian CCPs, due to the nature of their markets. It said that requirements and standards relevant for an EU-based CCP may not be relevant for Asian CCPs, due to different market conditions, products and the fact that these CCPs mainly serve domestic market participants.

IOSCO said that the due process for the non-EU CCP equivalence assessment may not be completed according to the original deadline, meaning that European banks might have to withdraw from clearing with them.

IOSCO recommended to the EU that an extension is applied to allow them to qualify as CCPs for a further six month period after 15 June 2014, which would expire on 15 December 2014.

"We see this letter as an extremely positive step in the ongoing dialogue between the Asian markets and the European Commission,” said Barnaby Nelson, head of client development, banks, broker-dealers and corporate issuers, BNP Paribas Security Services. “By initiating a region-to-region dialogue, the APRC is setting the scene for a single, coordinated dialogue between Asia and Europe - helping to ensure the same consistency in discussion and application as we have seen in the adoption of the IOSCO principles for financial market infrastructure across the region.

“This is also the first public document in several months that accurately summarises the concerns of Asian regulators and market places. I believe many of them will be relieved to see their positions now being publicly conveyed to the European Commission."

Ashley Alder, CEO of Hong Kong’s Securities and Exchange Commission (and the signatory of this letter in his capacity of chairman of the APRC of IOSCO) said a number of extra-territorial issues are concerning.

He said the core problem is that there was very little clarity about the ultimate criteria on which comparability will be assessed. The EU has said it would look at outcomes, and whilst rules don’t have to be identical outcomes have to be the same.

He explained that how one does that is very difficult, because if there is an outcome with a clearing house and how much it costs to run it, and those costs were passed on to users, then users may then decide which clearing house to use simply depending on cost.   

Alder added that if you have an EU rule that describes the way, for example, margin is calculated, which is tighter than another jurisdiction, even though the ultimate outcome from a soundness and safety systemic risk perspective is equivalent, it remains an issue if the differences still drive choices where to do business.

The conversation, Alder concluded, morphs from the G-20 objective of systemic risk into a conversation about competition and trade and national interest.