A meeting with the European Commission market infrastructure division

Thomas Murray Data Services recently met with the European Commission market infrastructure division in Brussels. Here is a summary of the main talking points arising from our meeting:

  • Despite the challenges facing the dual-sided reporting of exchange traded derivatives and over the counter derivatives courtesy of the European Market Infrastructure Regulation (EMIR), there are no plans yet to introduce single sided reporting. However, that is not to say it will not be introduced as a review of EMIR will be undertaken next August and there is a possibility, given all of the industry pressure, that single sided swap reporting could be mandated in a manner not too dissimilar to the US. Nonetheless, any changes would require an introduction of legislation which would be time consuming.
  • The ongoing challenge to determine which counterparty creates the Unique Trade identifier (UTI) to enable trade repositories to match and pair reported transactions looks set to continue. At present, multiple counterparties to trades are generating UTIs and often they are not identical. This has resulted in trade repositories being unable to pair and reconcile reported trades. The European Commission said this was an issue for the industry to resolve and was not the responsibility of policymakers.
  • The European Commission conceded there have been teething problems with EMIR and that national competent authorities had been generous in offering firms relief, providing they put in an effort to attain compliance to the best possible degree. The European Commission said it could not comment on behalf of national regulators but expected sanctions would follow for financial institutions in due course for repeat offenses, or those failing to report accurately.
  • CCP equivalence was not a tick-the-box exercise and the European Commission said they scrutinised each market on a case by case study. Given the prescriptive nature of EMIR, they said they are working on an outcomes based approach to determine which regulatory regimes meet equivalence and there does not seem to be a prescriptive qualitative assessment process. The European Commission said the assessment was broad and that it is based on the size of the market, the complexity of cleared products and the rulebooks of CCPs within those markets. Ongoing issues with the US were touched upon – for example, the US approach to initial margin calculations is not as conservative as that of the EU. The lower accounting standards when calculating CCP balance sheet in the US was not an issue, said the European Commission.
  • The European Commission said there are sufficient protections in the EU to mitigate the risks of CCPs clearing swaps transactions that are too esoteric for clearing and there are procedures in place to prevent competition on margin. However, this is not the case for CCPs outside of the EU and this is worrying regulators. 
Tags: RegulationESMAEuropean CommissionCCPsCCPequivalency