The Economic and Monetary Affairs Committee (ECON) of the European Parliament has voted to allow cash equity central counterparties (CCPs) to interoperate under the European market infrastructure regulation (EMIR), but similar arrangements for derivatives will not apply before 2014.
The vote, still to be ratified at a plenary session of the Parliament, also confirmed that any future obligation to centrally clear trades will only apply to over-the-counter derivatives, not exchange-traded derivatives.
As a result, exchanges that operate CCPs in a vertically integrated ”silo' will only have to allow access for bilateral trades, not from rival venues. This means, for example, that Eurex, the derivatives trading platform owned by Deutsche Börse and SIX Swiss Exchange, will not have to provide clearing services to rival venues or offer competitive pricing for clearing services.
The European Securities and Markets Authority (ESMA), the pan-European securities market regulator, must submit a report by 30 September 2014 on whether and when an extension of interoperability arrangements to other financial instruments would be appropriate.
A series of other changes to the original EMIR document, originally put forward by the European Commission (EC) on 15 September 2010, were also voted through by MEPs. The amended document was tabled by ECON's rapporteur for the paper, Werner Langen MEP, who took in 975 proposed changes from other ECON committee members.
All derivatives contracts are to be reported, not only those for over-the-counter (OTC) derivatives, a requirement that will apply retroactively to existing contracts.
Cash equity CCPs must have been functional for three years or more and have the approval of their national regulator to interoperate with other CCPs. ESMA will be given powers to inspect CCPs including those of non-EU countries seeking to enter into interoperability agreements.
In addition, certain national government-recognised pension schemes will be exempted from clearing obligations for three years.
EMIR will provide the framework of rules for clearing of OTC derivatives, CCP requirements, post-trade interoperability, reporting obligations and requirements for trade repositories. The rules are intended to reduce systemic risk, exposed during the financial crisis, by increasing transparency and balancing risk exposure in the derivatives markets, in line with objectives ant timelines laid out by the Group of 20.
The European Parliament is now expected to back the new version of the regulation with a plenary vote in early July. However a clash with the Council of the European Union, Europe's other decision-making body, could be on the cards if the Council tries to extend the remit of EMIR to include exchange traded derivatives.
To become law, the regulation must be voted through by both Parliament and the Council. Any differences between the versions could be resolved in a ”trialogue' involving the Council, the Parliament and the EC. However, by passing its version of EMIR on the first reading, Parliament would fix its position on the regulation, requiring the EC to draft a compromise.
Separately, the Council has also been debating both CCP access to central bank money for liquidity purposes and the balance of powers between ESMA and national regulators. It is due to reach a common agreement on 20 June at a meeting of finance ministers.
For the EC to produce a compromise document could take several months, according to one parliamentary source, making legislation unlikely before October or November this year.
At the 26 September 2009 summit in Pittsburgh, leaders from the Group of 20 nations agreed that all standardised OTC derivative contracts should be cleared through CCPs by the end of 2012 at the latest and that OTC derivative contracts should be reported to trade repositories.