In December, The European Commission (EC) proposed amendments to the European Market Infrastructure Regulation (EMIR) to make derivatives clearing in the EU more attractive, which has caused some debate.
Among the various aims of the new proposals, the EC sought to encourage clearing in the EU by simplifying the procedures for central counterparties (CCPs) when launching new products and changing risk models by introducing a non-objection approval for certain changes that do not increase the risks for the CCP.
The EC also looked to make EU CCPs more resilient by further enhancing the existing supervisory framework through the new proposals, alongside efforts to strengthen EU open strategic autonomy and safeguard financial stability.
The International Swaps and Derivatives Association (ISDA), the Alternative Investment Management Association (AIMA), the European Fund and Asset Management Association (EFAMA) and the Futures Industry Association (FIA) have responded to the EC’s proposed EMIR amendments with the following:
“Such measures would further reinforce the positive trends already observed in the clearing of euro-denominated contracts at EU CCPs. A strategy based on organic growth and market-driven solutions would best support the competitiveness of EU CCPs in a global clearing marketplace.”
However, the associations were less complementary about the EC’s proposals which would require firms subject to the EU clearing to have an active account at an EU CCP, alongside enabling the European Securities and Markets Authority (ESMA) to define the portion of certain euro and Polish zloty-denominated contracts that should be cleared through those accounts through secondary regulation.
“Changes to capital rules would reinforce this, making it less commercially viable for EU market participants to clear through CCPs based outside the EU,” highlighted the associations.
“We remain convinced that these measures, as proposed, would be harmful to EU capital markets. They would make EU firms less competitive and would have a negative impact on the derivatives market, EU clearing members and their clients, EU investors and savers, and the Capital Markets Union. For EU firms, this would not only hinder their ability to provide best execution to clients, but would also be costly to implement.
“We believe the EC should substantiate the risk of clearing through tier-two CCPs based outside the EU and provide a robust cost-benefit analysis of the proposed active account requirements.”