Nasdaq OMX Clear was the first CCP (central counterparty clearing house) to be reauthorised under EMIR (the European Market Infrastructure Regulation) on 18 March 2014. Since then, however, the clearing mandate has been postponed twice, with the new capital requirements that will require clearing activity to be conducted at a Qualified CCP, such as Nasdaq OMX, now set to become active on 15 December 2015.
We have looked at the delays to mandatory clearing here:CCP approval and equivalence process drags on
Given its position as the first QCCP in Europe, Nasdaq OMX is well placed to discuss the mandate in Europe and how the approval process has impacted their business. Thomas Murray Data Services spoke to Fredrik Ekström, head of risk management – European clearing at Nasdaq OMX, about the clearing mandate and what Nasdaq has been able to do since being approved by ESMA (the European Securities and Markets Authority).
This is part one of a two part Q&A with Ekström.
TMDS: You were the first EMIR authorised CCP in Europe. Has there been any advantage for Nasdaq OMX?
FE: In terms of the EMIR authorisation, some of the advantage, or edge, that we hoped to receive as a result of being the first to be authorised has been somewhat lost as the mandate has been delayed in terms of the original plan. The regulatory equivalence issue between the US and Europe has also pushed back the need to be a QCCP and that was also one of the reasons for being very early in the approval process – to be able to prepare for the mandate and its impact, and also to get into position under the Basel III Capital Requirements which state that it is necessary to be a QCCP to achieve the lower capital requirements.
Nevertheless, we wanted to be early as there were things we wanted to do in building our CCP. One of the things we did after approval was to continue our work to become a truly multi-asset clearing house. Part of this was to integrate the Norwegian clearing house, NOS ASA. It cleared mainly within the freight, fuel-oil and seafood clearing business and was acquired by Nasdaq in 2012 to be integrated into Nasdaq Clearing after we got the EMIR license.
We also looked to immediately broaden the suite of products we could clear. We were also the first CCP to apply for an extension to our license to clear FX products. We now have that approval to clear both listed and OTC FX instruments; I think we are the first to have this approval.
Those are two examples of how we have continued to build our business on the back of being an EMIR approved CCP, although I do feel that some of the advantage has been lost in the delays to the clearing obligation and the QCCP status.
Are your clients mainly Scandinavian based, or pan-European?
It is clearly a pan-European customer base. Nasdaq Clearing was set up in the mid-1980s at a time when most of our clients were Nordic based banks and broker dealers. With the move to become a multi-asset class clearing house, our customer base has changed and within equities and interest rate products, about half of our clients are non-Nordic and within the commodity market we have a global client base. The commodity market is truly global.
How easy is it sign up and use Nasdaq’s CCP?
Unsurprisingly I would argue it is easy! Our on-boarding process is quite straightforward. We have procedures to follow to establish memberships but I think we have, and this is a bit unique, a lot of direct participants – over 300 in our CCP. If you compare that to the larger European CCPs, they have more of a general clearing member structure. We combine the GCM structure with having many direct participants, which demonstrates that our on-boarding process is relatively simple.
Also the paperwork and the opening of accounts and connectivity to the payment and collateral system makes it easy to connect to us. Another thing that we have, which is also a bit unique, is that we have over 300 segregated clients (ISA accounts) at the CCP.
One of the things that has been discussed at length within the industry has been the segregated account models at CCPs. There has been a limited take up of segregated accounts in Europe, but that is not the case in the Nordics.