CCPs

The EMIR (European Market Infrastructure Regulation) authorisation process has brought about a ‘huge change’ to the clearing world, at least according to the panellists at the recent Futures Industry Association IDX Conference in London. On top of the challenges in becoming authorised under new regulatory regimes, there are also issues of cross border equivalence to be reached by the regulators in each jurisdiction, as well as the challenge to be recognised as a Qualifying, or ‘Q’ CCP.

It has now been over a month since the fourth central counterparty clearing house (CCP) was approved by the European Securities and Markets Authority (ESMA) on 10 April. In total, 22 CCPs applied for reauthorisation under the European Market Infrastructure Regulation (EMIR). Whilst there is no clear competitive advantage to those already approved, it does at least offer clarity and certainty. Although there is no ostensible reason for any of the other 18 to be refused authorisation, the incremental approval process has created confusion amongst the CCPs and their clearing members.

Of all the topics discussed at the 5th annual Marketforce conference The Future of Clearing & Settlement, the one recurrent theme was that of collateral management. The post-trade landscape in Europe is changing rapidly under a ‘tidal wave’ of regulations and directives. The infrastructures themselves are ready for these changes, but the readiness of market participants is a concern.

The Boy Scouts’ motto, ‘Always prepared’ is one that resonates throughout one’s life, and no less so than when it comes to the topic of central clearing and collateral in the EU (European Union). The implication for the buy-side of new European regulations has been well documented, but there has been less said about the situation facing sell-side firms.

Central clearing is a key tenet of the market reform that is being implemented globally. It is set to become an obligation in Europe during 2014. Many market participants already clear some of their trades at CCPs (central counterparties) as a mitigation technique against counterparty risk exposure. These entities are currently undergoing a re-authorisation process in Europe that is set to be finalised by 15 March.

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