Głowacki Law Firm

Central counterparty (CCP)
European Union Electricity Market Glossary

 

 

CCPs (central counterparties) are a market infrastructure, which reduces systemic risk and enhances financial stability by standing between the two counterparties to a derivatives contract (i.e. acting as buyer to the seller and seller to the buyer of risk) and thereby reducing the risk for both.

 

Thereby, in a more general sense, they increasingly become the critical nodes in the financial system.

 

As of 9 October 2017 the following CCPs were available for the EU counterparties to satisfy requirements for mandatory clearing under the EU law:

 

- 17 CCPs authorised in the EU (however, not all EU CCPs were authorised to clear all asset classes), as well as

ccp third country 

- 32 third-country CCPs (TC CCPs) that were recognised under the EMIR equivalency processes.

 

But, first, a few remarks on the nature and scale of the CCPs' business.

 

Communication from the European Commission "Responding to challenges for critical financial market infrastructures and further developing the Capital Markets Union" of 4 May 2017 (COM(2017) 225 final) said:

 

"Clearing derivatives transactions is a global financial service. As such, most clearing is done across borders, both within the EU and internationally with CCPs established in third countries. The scale and importance of CCPs in Europe and globally has nearly doubled since the post-crisis G20 commitment to clear standardised OTC derivatives through CCPs. On average 62% of their outstanding value was centrally cleared by CCPs across all types of derivative contracts. More specifically, the Bank for International Settlements estimated that the volume of cleared OTC transactions at the end of June 2016 amounted to $337 trillion globally, of which the large majority ($328 trillion) are interest rate derivatives."

 

Legal definition of the 'CCP' or 'central counterparty' is included in Article 2(1) of the European Market Infrastructure Regulation (EMIR)

 

Pursuant to this provision CCP means a legal person that interposes itself between the counterparties to the contracts traded on one or more financial markets, becoming the buyer to every seller and the seller to every buyer.

 

The activity at issue is commonly known as "clearing", which is defined in the EMIR as "the process of establishing positions, including the calculation of net obligations, and ensuring that financial instruments, cash, or both, are available to secure the exposures arising from those positions".

 

Leave alone legal nomenclature and turn to practical business impacts. These are summarised in the concise manner in the ESMA's document "Risk Assessment on the temporary exclusion of exchange traded derivatives from Articles 35 and 36 of MiFIR of exchange traded derivatives from Articles 35 and 36 of MiFIR" (04 April 2016, ESMA/2016/461, p. 19), which unequivocally confirms:


"Trading and clearing costs are inextricably interlinked since the customer's choice of a trading venue is, among others, based on total costs, i.e. trading and clearing costs. If a trading venue can offer only competitive trading costs, but – due to the lack of access to a CCP providing competitive clearing costs and delivering margin netting benefits – no attractive clearing conditions, it may lose some of its business or exit the market."

 

The level playing field as regards the CCP's business is ensured in the MiFID II, which safeguards trading venues' rights to choose, which CCPs they connect to and vice versa.

 

MiFID II, moreover, requires trading venues and CCPs to provide access to each other on a non‑discriminatory basis.

 

There are reasonable grounds, then, for the market participants to be particularly interested in the CCP's legal framework, since it forms a  significant part of the overall competitive edge.

 

 

Authorised CCPs' list

 

 

Among first CCPs registered by ESMA under EMIR were:

- Nasdaq OMX Clearing AB, Sweden, date of authorisation - 18 March 2014,

- European Central Counterparty N.V. (EuroCCP - NL), Netherlands, date of authorisation - 1 April 2014,

- KDPW_CCP, Poland, date of authorisation - 8 April 2014.

 

Further CCPs authorised by ESMA (May 2014) were CC&G (Italy) and LCH.Clearnet SA (France) and LCH.Clearnet Ltd (UK) in June 2014.

 

The complete and actual list of central counterparties (CCPs) that have been authorised by ESMA to offer services and activities in the European Union in accordance with EMIR is available here.

 

  

CCPs' heterogeneity

 

 

CCPs are highly differentiated in terms of assets classes being cleared, including equities, bonds, energy, commodities, repos, clearing cash instruments and both exchange-traded and OTC derivatives.

 

The CCP's business is, however, not homogeneous - while a few CCPs offer clearing services in specific market segments, several EU CCPs are active in multiple asset classes.

 

Risk Assessment on the temporary exclusion of exchange traded derivatives from Articles 35 and 36 of MiFIR of exchange traded derivatives from Articles 35 and 36 of MiFIR, 04 April 2016, ESMA/2016/461 (p. 12) refers to six European CCPs which offer IRS clearing - although some of those CCPs have specialised on certain sets of currencies, the most liquid contracts can be cleared by up to five different CCPs. 

 

This is the case, for example, for OTC fixed-to-float swaps on Euribor.

 

The situation is different in the case of commodity derivatives: although there are five CCPs clearing this asset class, they have a higher degree of specialisation and little overlap in their product offering (hence there are few identical commodity derivatives contracts which are cleared by different CCPs).

 

Overview of product types cleared the CCPs in 2014 was presented by the Bank for International Settlements as follows:

 

 

 

CCPs product offering

 

 

Table: Percentage of CCPs offering clearing for a specific product type in 2014, by jurisdiction (Source: Central clearing: trends and current issues, Dietrich Domanski, Leonardo Gambacorta and Cristina Picillo, 6 December 2015, Bank for International Settlements)

  

Among the broad category of the CCP's are also the ones that act in the form of banks (although only three out of the many thousands of banks in Europe are licensed as CCPs).


CRR definition of the credit institution ("an undertaking the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account") allows a whole range of activities that banks can exercise.

 

EBA and ESMA Report on the functioning of the Regulation (EU) No 575/2013 (CRR) with the related obligations under Regulation (EU) No 648/2012 (EMIR), ESAS-2017-82, 11 January 2017 underlines EMIR does not prevent the EU Member States from adopting an authorisation as a credit institution for CCPs established in their jurisdiction (Article 14(5)).

 

The said document also confirms that there are "many different models that are applied by banks and, not surprisingly, banks can indeed also be CCPs."

 

Also Article 23 and Recital 4 of the Commission Delegated Regulation (EU) 2016/2251 of 4 October 2016 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories with regard to regulatory technical standards for risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty literally refer to the CCPs being credit institutions.

 

Should a CCP also be licensed as a bank, the requirements of both the CRR and EMIR would, from a legal perspective, apply to the "bank-CCP".

 

 

CCPs' interconnectedness

 

 

CCPs are highly interconnected mainly due they clear common trading venues.

 

Some CCPs provide clearing on a cross-border basis to exchanges or other trading venues in Member States other than the Member State in which they are established.

 

Commission Staff Working of 13 June 2017 (SWD/2017/0246 final - 2017/0136 (COD), 13.06.2017, p. 23) provides an example of Eurex Clearing AG (established in Germany) which clears the Irish Stock Exchange, Börse Berlin is cleared by the LCH Ltd (established in the UK), LCH S.A (established in France), EuroCCP (established in the Netherlands) and SIX x-clear (established in Switzerland).

 

Participants on the London Stock Exchange are offered a choice of clearing services from LCH Ltd., EuroCCP and SIX x-clear for all traded instruments (except Polish and Spanish instruments, which are cleared by EuroCCP and LCH Ltd., and US instruments, which are cleared by EuroCCP).

 

European Commodity Clearing established in Germany clears commodity markets across the EU and elsewhere.

 

CCPs can be interconnected via so-called interoperability arrangements which allow clearing members of one CCP to clear transactions with clearing members of another CCP.

 

This is the case for EuroCCP, LCH Ltd. and SIX x-clear in various equities markets, for LCH S.A. and CC&G (established in Italy) in various bond markets and for LCH Ltd. and SIX x-clear in some markets for exchange traded derivatives.

 

In addition, KELER CCP (established in Hungary) is a clearing member of the European Commodity Clearing and offers access to clearing at ECC to its own clearing members.

 

The aforementioned Commission Staff Working of 13 June 2017 refers to the fact CCPs were originally designed to facilitate trading in securities and not as “macro- prudential institutions” with a responsibility to improve the safety and soundness of the broader financial system.

 

However, as the OTC derivatives market has grown and mandatory clearing of these instruments has become a feature of regulation, some CCPs have become sufficiently large and interconnected to be systemically important.

 

The economies of scale (due to netting and diversification benefits) attached to central clearing favour the use of a small number of large CCPs, resulting in a significant risk concentration in these infrastructures.

 

 

Equivalence regime

 

 

After these prolonged, preliminary remarks, let's go back to the issue of third-party CCPs and the aforementioned threats to their recognition in the EU.

 

A CCP established in an equivalent third country may provide clearing services to clearing members or trading venues established in the Union and can be used to fulfil the EMIR 'clearing obligation'.

 

Countries covered: Australia, Brazil, Canada, Dubai International Finance Centre (DIFC), Hong-Kong, India, Japan (commodities, financial derivatives), New Zealand, South Korea, Mexico, Singapore, South Africa, Switzerland, UAE, US (CFTC).

 

Commission Staff Working Document, EU equivalence decisions in financial services policy: an assessment, 27.2.2017 SWD(2017) 102 final, p. 15

 

 

It is useful to remind that for cross border issues, EMIR relies as regards CCPs on a system of equivalence decisions, combined with recognition decisions.


The European Commission in its communication of 30 October 2014 has recalled that a central counterparty established outside of the European Union (third-country CCP - TC-CCP) may provide clearing services to EU clearing members and trading venues where it has been recognised in accordance with the conditions set out in Article 25 of EMIR.

 

EMIR does not require the third country CCP to comply with the EMIR requirements for CCPs but instead relies on the CCPs to be fully compliant with their local regime and be effectively supervised domestically when the applicable CCP regime has been deemed equivalent (Final Report Draft regulatory technical standards on indirect clearing arrangements under EMIR and MiFIR, 26 May 2016, ESMA/2016/725, p. 5).

 

CCPs that have been recognised under the EMIR process will also obtain qualifying CCP (QCCP) status across the European Union under Regulation (EU) No 575/2013 (CRR). 

 

Finally, CCPs that have been recognised under the EMIR process may be used by EU counterparties in order to satisfy their mandatory clearing obligations under EU law.


A non-EU CCP wishing to obtain recognition must apply to the European Securities and Markets Authority (ESMA) and the conditions for recognition that must be checked are:

 

"Article 25 of EMIR on the recognition of third-countries CCP provides in paragraph 6 that the Commission may adopt an implementing act under Article 5 of Regulation (EU) No182/2011, determining that the legal and supervisory arrangements of a third country ensure that CCPs authorised in that third country comply with legally binding requirements which are equivalent to the requirements laid down in Title IV of EMIR, that those CCPs are subject to effective supervision and enforcement in that third country on an ongoing basis and that the legal framework of that third country provides for an effective equivalent system for the recognition of CCPs authorised under third-country legal regimes. The adoption of such an implementing act is the first of four conditions for ESMA to recognise third-country CCPs."

 

ESMA's Discussion Paper, Review of Article 26 of RTS No 153/2013 with respect to client accounts, 26 August 2015 (ESMA/2015/1295) 

  

 

- the European Commission has adopted a positive equivalence decision with regard to the regulatory framework applicable to CCPs in the third country. This is the primary condition for recognition. The European Commission will assess the requirements applicable to CCPs in the third country. If the requirements achieve the same regulatory outcomes in terms of reduction of systemic risk, the European Commission may determine equivalence;


- the central counterparty in question is authorised and supervised in accordance with the regulatory framework determined to be equivalent under the above condition. ESMA will check this is the case when the CCP applies for recognition;

 

- the CCP is established or authorised in a third country that is considered as having equivalent systems for anti-money-laundering and combating the financing of terrorism to those of the Union in accordance with the criteria set out in the common understanding between Member States on third-country equivalence under Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing;


- cooperation arrangements have been established between the European Securities and Markets Authority - ESMA) and the relevant third country supervisory authorities covering supervisory arrangements and the sharing/notification of information.


ESMA initiates this part of the process with the relevant regulators of the CCP that has applied for recognition.

 

"The review of EMIR provides an opportunity to rethink the approach toward TC-CCPs. Considerations should be given to the following:

- Whether to keep a system of full reliance on third country rules and supervisory arrangements, or whether a system as the one applicable in the majority of the third countries should be envisaged;

- If the system of equivalence is maintained, whether such equivalence determinations should be rather adopted via Regulatory Technical Standards. This would provide for technical considerations to be fully reflected and it would ensure a more defined calendar. Whatever legislative process is decided upon, it would be important to ensure the equivalence assessment, while being outcome based, is sufficiently granular and, where necessary, is able to contain conditions to mitigate possible risks for European market participants.

[...] Should the process for the recognition be maintained as under the current EMIR, ESMA believes that it should as a minimum be complemented with a defined legal basis for not recognising a CCP. In particular, the Commission could consider revising Article 25 in order to:

 

- Identify the circumstances under which ESMA may decide not to recognise a TC-CCP (even though the 4 conditions are met).

- Foresee that the review of recognition under article 25(5) with respect to the extension of activities and services in the Union should be performed ex-ante and not ex-post. For instance, it could be foreseen that information on extension of activity should be provided prior to the actual extension rather than afterwards, to allow ESMA to react efficiently.

- Establish that the conditions (a) and (d) in Article 25(2) shall be met before a TC-CCP can submit an application for recognition.

- Reconsider whether for the assessment of the 4 conditions currently envisaged under EMIR, the wider consultation of many European and national authorities is valuable."

EMIR Review Report no. 4 of 13 August 2015 - ESMA input as part of the Commission consultation on the EMIR Review (2015/1254), p. 21

The first 'equivalence' decisions have been adopted by the European Commission on 30 October 2014 for the regulatory regimes of central counterparties (CCPs) in Australia, Hong Kong, Japan and Singapore (see the equivalence decisions).


The CCPs in these third country jurisdictions are able to obtain recognition in the EU, and can therefore be used by market participants to clear standardised OTC derivatives as required by EU legislation, whilst remaining subject solely to the regulation and supervision of their home jurisdiction. Although rules may differ in the detail, an outcome based approach is used.


In principle, the European Commission begins its assessment for equivalence if a CCP from a third country seeks recognition from the ESMA.


If a determination of equivalence is made, it will be given effect through a legally binding implementing act in accordance with Article 25(6) EMIR.

 

On 29 April 2015 the European Securities and Markets Authority (ESMA) has recognised ten third-country CCPs established in Australia, Hong Kong, Japan and Singapore.

 

In effect, on 7 May 2015 a list of recognised, equivalent third-country CCPs as well as of the classes of financial instruments covered by the recognition of the following CCPs has been published:

- ASX Clear (Futures) Pty Ltd,

- ASX Clear Pty Ltd,

- HKFE Clearing Corporation Limited,

- Hong Kong Securities Clearing Company Limited,

- OTC Clearing Hong Kong Limited,

- SEHK Options Clearing House Limited,

- Japan Securities Clearing Corporation,

- Tokyo Financial Exchange Inc,

- Singapore Exchange Derivatives Clearing Limited,

- Central Depository (Pte) Limited.

 

The recognition by ESMA allowed the abovementioned third country CCPs to provide clearing services to clearing members or trading venues established in the EU (emission derivatives were cleared by the two Australian CCPs: ASX Clear (Futures) Pty Ltd and ASX Clear Pty Ltd. (OTC bilateral and OTC third country exchange)).

 

The aforementioned European Commission communication of 30 October 2014 indicated that multiple further jurisdictions (United States including) were being assessed and were given a top priority.

 

Nevertheless, the prolonged process of the CCP's equivalence assessments has raised some tension (see Bourses urge EU to speed up rulings on clearing houses).

 

The opinion has been voiced that "delayed equivalence will increasingly have the effect of cutting off third-country clearing houses from European market participants", which threatens to "lead to a re-allocation of derivatives trading activity and liquidity away from markets that have not received equivalence determinations."

 

The risk of fragmentation of existing pools of liquidity in derivatives, that are traded and cleared on a cross-border basis, has also been accentuated.

 

On 13 November 2015 the European Commission determined that five further countries (Canada, Switzerland, South Africa, Mexico and the Republic of Korea) have the equivalent regulatory regimes for central counterparties as the European Union (see the relevant European Commissions' communication). 

 

The problem with the recognition of the US CCPs was stuck in the fact that the EU rules required CCPs to collect sufficient collateral to cover potential losses over a two-day horizon while the US only required enough collateral to cover potential losses over one day (Margin Period of Risk (MPOR)).

 

The shorter margin horizon under the US rules was balanced by the requirement for the US CCPs to collect sufficient collateral to cover the gross exposure of all clients, whereas the EU rules allowed for the netting of client collateral. 

 

Effects of this temporary stalemate are covered in greater detail under following links:

 

New EU rate-swap rule will deal a big blow to US,

 

U.S. derivatives chief urges EC to move fast on clearinghouse rules,

 

European Commission and the United States Commodity Futures Commission: Common approach for transatlantic CCPs,

 

- The United States Commodity Futures Trading Commission and the European Commission: Common approach for transatlantic CCPs,

 

- ESMA resumes US CCP recognition process following EU-US agreement.

 

Finally, on 15 March 2016, the European Commission adopted an equivalence decision (implementing act) for the regulatory regime for CCPs of the United States Commodity Futures Trading Commission - see:

 

- Commission Implementing Decision (EU) 2016/377 of 15 March 2016 on the equivalence of the regulatory framework of the United States of America for central counterparties that are authorised and supervised by the Commodity Futures Trading Commission to the requirements of Regulation (EU) No 648/2012 of the European Parliament and of the Council, and

 

- the European Commission's press release of 15 March 2016, IP/16/807).

 

The said decision grants the US the equivalent regulatory regime for central counterparties as the European Union.

 

It is noteworthy, market infrastructure in the US jurisdiction is based on slightly different model of a CCP serving multiple trading venues.

 

The design where the Options Clearing Corporation (OCC) is the sole clearing organisation for all securities options exchanges in the US has the advantage that one single clearing pot allows the 13 option exchanges to offset their open interest in that pot against all correlated positions of the other member exchanges allowing for competition at the level of the exchanges (Risk Assessment on the temporary exclusion of exchange traded derivatives from Articles 35 and 36 of MiFIR of exchange traded derivatives from Articles 35 and 36 of MiFIR, 04 April 2016, ESMA/2016/461, p. 25).

 

Moreover, in 2012 OCC has been designated as a Systemically Important Financial Market Utility (SIFMU) by the Financial Stability Oversight Council (FSOC) as part of the Dodd-Frank financial overhaul law.

 

SIFMUs are entities whose failure or disruption could threaten the stability of the United States financial system and are subject to heightened oversight by the US financial regulator, such as expanded recovery and resolution plan requirements, and broader risk management requirements.

 

On 16 December 2016 the European Commission has determined that India, Brazil, New Zealand, Japan Commodities, United Arab Emirates (UAE) and Dubai International Financial Centre (DIFC) have equivalent regulatory regimes for central counterparties (CCPs) to the European Union (see the European Commission's Press release of 16 December 2016).

 

It is noteworthy, to facilitate the pertinent processes, on 17 March 2016 ESMA issued Practical Guidance for the recognition of third-country CCPs by ESMA (ESMA/2016/365). This document reads:

 

"According to Article 25(2) of EMIR, ESMA may only recognise a TC-CCP where certain conditions have been satisfied. In particular the European Commission needs to have adopted an implementing act determining, amongst other things, that the legal and supervisory arrangements of the jurisdiction in which the CCP is established are equivalent to the requirements laid down in EMIR (Article 25(2)(a) of EMIR) and the jurisdiction in which the TC-CCP is established needs to have equivalent systems for anti-money laundering and combating the financing of terrorism to those established in the European Union (Article 25(2)(d) of EMIR)" (p. 3).

 

 

"CCPs established in third countries may provide clearing services to clearing members or trading venues established in the Union only where that CCP is recognised by ESMA. In addition, under the Capital Requirements Regulation (CRR), credit institutions and investment firms may only benefit from advantageous capital treatment with respect to cleared derivatives transactions, when the CCP they are facing is recognised by ESMA.


This has led 42 third-country CCPs to apply for recognition to ESMA, as of 31 December 2015.


One of the conditions to be granted recognition is the adoption by the Commission of a so-called "equivalence decision" determining, inter alia, that the legal and supervisory arrangements of the third- country in which the CCP is established are equivalent to the EMIR requirements."

 

ESMA Annual Report 2015, 15 June 2016, ESMA/2016/960 (p. 56, 57)

 

In the said document ESMA strongly recommends that prior to submitting an application for recognition, potential applicants ascertain whether the conditions in Article 25(2) of EMIR are, or are likely to be, fulfilled.

 

This is important because if the conditions in Article 25(2) are not fulfilled then ESMA will not be able to grant the recognition, meaning that clearing members and trading venues established in the European Union will have to cease using the clearing services of the TC-CCP with immediate effect.

 

The ESMA's website covering comprehensive overview of the third country (non-EU) equivalence issues under EMIR can be accessed here.

 

The above website comprises, among others:

 

1. the list of recognised third-country CCPs, as well as

 

2. the list of CCPs established in non-EEA countries which have applied for recognition under Article 25 of EMIR.

 

However, the latter list is subject to some reservations, it includes only applicants who expressly agreed to have their name mentioned publicly, moreover, is not necessarily exhaustive and it remains subject to further updates.

 

Hence, as the ESMA explicitly states, the said list is provided for information purposes only and it is without prejudice to any future ESMA decision of the recognition of the applicant CCPs.

 

Applicants are required to indicate in their submissions for recognition as a TC-CCP under EMIR, whether they express their consent to being included in the said list to be published on ESMA's website.

 

As of January 2017 22 third-country CCPs were recognised and more were still awaiting for recognition following new equivalence decisions by the European Commission.

 

However, according to the opinion of Steven Maijoor, the Chair of the European Securities and Markets Authority, the EU should consider redesigning the equivalence approach because there are doubts whether ESMA has sufficient assurance that risks of the third country infrastructures' activities in the EU are adequately assessed and addressed by the home regulator in the third country, and ESMA has very limited opportunities to assess the specific risks that third country CCPs might be creating in the EU (PRIME Finance 6th Annual Conference, Keynote speech The Hague, 23 January 2017ESMA71-844457584-329 - see box below).

 

 

Under the equivalence approach, a country is considered equivalent when its rules are similar and compatible with EU rules. When the regulatory outcomes are determined to be equivalent, subject to certain conditions, an individual market participant can be recognised and provide its services in the EU. Under the equivalence mechanism, there is a heavy reliance on the home regulator. As indicated earlier, under EMIR ESMA has already recognised more than 20 CCPs from outside the EU and we are processing 25 other applications.
ESMA raised two main concerns regarding the equivalence mechanism in its earlier mentioned reports on the EMIR review in 2015. First, the main benefits of the equivalence system are envisaged to materialise when all main jurisdictions apply this approach: an internationally active CCP would then in principle mainly be supervised by its home regulator. This is beneficial from the perspective of avoiding overlaps and duplications in supervision and regulation.


However, it is also true that the EU is "an island" of equivalence and third-country reliance in a world that has mostly opted for registering individually those infrastructures and market participants which want to do cross-border business. Hence, third country CCPs have benefited from the EU's equivalence system, while EU CCPs are still required to be authorised and to be subject to the supervision of the third country regulator when they want to be active outside the EU. Obviously, this was not the intended result when designing the equivalence mechanism.


The second concern expressed in our review reports of 2015 relates to the strong reliance on the home country regulator: do we have sufficient assurance that risks of the third country infrastructures' activities in the EU are adequately assessed and addressed by the home regulator in the third country? ESMA has very limited opportunities to see the specific risks that third country CCPs might be creating in the EU as we have very limited powers regarding information collection and risk assessment. This second concern is especially relevant the more important the role of the third country in the EU's financial system.


To conclude, I think the EU should consider redesigning the equivalence approach taking the two concerns identified above into account.

 

Steven Maijoor, Chair of the European Securities and Markets Authority, PRIME Finance 6th Annual Conference, Keynote speech The Hague, 23 January 2017ESMA71-844457584-329

 

The ESMA's Letter of 27 January 2017 to the European Commission on the EMIR Review and ESMA sanctioning powers under EMIR and CRAR, ESMA70-708036281-1 argues in the same vein that considerations should also be given to the fact that in the current recognition process as defined in EMIR there is no provision that allows ESMA to deny recognition on the basis of any material risk emerging from its review of a CCP application, even though the fours conditions of Article 25(2) are met.


In the ESMA's view, in the case the current system is maintained, at a minimum, some key improvements recognition procedure should be envisaged:

 

- introduce a risk based assessment according to which recognition may be denied;


 

foresee that the review of recognition under article 25(5) with respect to the extension of activities and services in the European Union should be performed ex-ante and not ex-post;


- establish that the conditions (a) and (d) in Article 25(2) shall be met before a TC-CCP can submit an application;
reconsider whether for the assessment of the 4 conditions currently envisaged under EMIR, the wider consultation of many European and national authorities is valuable; and


- introduce recognition fees to cover for ESMA related costs and avoid that EU taxpayers finance the recognition costs of foreign infrastructures willing to offer services in the EU.

 

Further, let's take a look at some closer regulatory details regarding CCPs' framework.

 

 

Eligibility to become clearing member in the CCP

 

 

EMIR requires a CCP to be a designated system under Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems.

 

This implies that clearing members of CCPs should qualify as participants within the meaning of that Directive, i.e. practically, they must be credit institutions, investment firms, or equivalent third country credit institutions or investment firms.

 

 

 

 

 

Legal effects of cleared derivative transactions not accepted for clearing by a CCP

 

 

Legal effects of cleared derivative transactions not accepted for clearing by a CCP depend on whether the transaction is concluded electronically on a trading venue or concluded through other means.

 

Cleared derivative transactions concluded electronically on a trading venue and not accepted for clearing by a CCP are void ("the trading venue shall void such contract" - Article 5(1) and Recital (10) of the Commission Delegated Regulation (EU) 2017/582 of 29 June 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards specifying the obligation to clear derivatives traded on regulated markets and timing of acceptance for clearing).

 

For other cleared derivatives transactions, the rules of the trading venue, and the contractual arrangements between the counterparties, should clarify in advance how these transactions are to be treated if not accepted for clearing by a CCP (Article 5(2) and Recital (11) of the said Commission Delegated Regulation (EU) 2017/582 of 29 June 2016).

 

The reason for above differentiation between is that the processing and submission for clearing to a CCP of the derivative transactions concluded electronically on a trading venue requires limited time, hence, the time for the market to move, and for the value and the risk of the cleared derivative transaction to change, in between the order and the non-acceptance is also very limited.

 

Therefore, the damage potentially suffered by counterparties whose transactions are not accepted for clearing by the CCP in this case - as opposite to transactions concluded through other means - is negligible.

 

 

 

Legal requirements for CCPs

 

 

Many important aspects of the derivatives' markets become heavily impacted by CCP's-specific arrangements. These are extensively elaborated in Title IV of EMIR (Articles 26 et seq.).

 

An example of such problems is Article 46(1) of EMIR, which requires that bank guarantees, used as collateral for CCP clearing of power and gas derivatives, are fully backed by collateral that meets the following conditions:

 

- it is not subject to wrong way risk based on a correlation with the credit standing of the guarantor or the non-financial clearing member, unless that wrong way risk has been adequately mitigated by haircutting of the collateral;

 

- the CCP has prompt access to it and it is bankruptcy remote in case of the simultaneous default of the clearing member and the guarantor.

 

Expired EMIR exemption made as from 15 March 2016 CCP collateral more costly for non-financial counterparties (for details see Non-fully backed bank guarantees coming to an end as the CCP collateral).

 

The aforementioned impacts criticised by some sectors' representatives as well as regulatory authorities (in particular the energy industry - see CEER Response to European Commission Consultation on EMIR, 13 August 2015). 

 

Among others, CEER disputed that a ban on using non-fully backed bank guarantees was the right remedy to alleviate the concern over CCPs' default risk. 

 

SFTs clearing

 

Even if Securities Financing Transactions (SFTs) per se are not financial instruments and CCPs are authorised under EMIR to clear financial instruments, when an authorised CCP clears SFT, it must equally apply EMIR, as EMIR covers the entire activity of an authorised CCP (Report on securities financing transactions and leverage in the EU Report prepared under the mandate in Article 29(3) SFTR, 4 October 2016, ESMA/2016/1415, p. 34).

 

Right of use

 

Under Article 46 of EMIR, collateral requirements are to be met with cash and highly liquid financial instruments having minimal credit and market risk in order to avoid potential disruptive changes with regards to the eligibility or valuation of posted collateral during stress events.

 

In accordance with Article 39(8) of EMIR, CCPs have a right of use relating to the margins or default fund contributions collected via a security financial collateral arrangement, within the meaning of Article 2(1)(c) of the Financial Collateral Directive provided that the use of such arrangements is provided for in its operating rules.

 

The clearing member is required to confirm in writing its acceptance of the CCP's operating rules and the CCP must, in turn, publicly disclose that right of use, which is to be exercised in accordance with Article 47 of EMIR.

 

Requirements on CCP's investment policy

 

Article 47 of EMIR imposes strict requirements on CCPs to invest their own funds or the contributions received.

 

CCPs are allowed to invest their financial resources only in cash or in highly liquid financial instruments with minimal market and credit risk.

 

A CCP's investments must be capable of being liquidated rapidly with minimal adverse price effect.

 

Furthermore, financial instruments posted as margins or as default fund contributions must, where available, be deposited with operators of securities settlement systems that ensure the full protection of those financial instruments.

 

Alternatively, other highly secure arrangements with authorised financial institutions may be used.

 

Similarly, cash deposits of a CCP must be performed through highly secure arrangements with authorised financial institutions or, alternatively, through the use of the standing deposit facilities of central banks or other comparable means provided for by central banks.

 

In addition, under Article 47(8) of EMIR CCPs must take into account their overall credit risk exposures to individual obligors in making their investment decisions and shall ensure that the overall risk exposure to any individual obligor remains within acceptable concentration limits.

 

CCP's extension of business

 

According to Article 15 of EMIR, a "CCP wishing to extend its business to additional services or activities not covered by the initial authorisation shall submit a request for extension to the CCP's competent authority. The offering of clearing services for which the CCP has not already been authorised shall be considered to be an extension of that authorisation. The extension of authorisation shall be made in accordance with the procedure set out under Article 17".

 

ESMA's Opinion of 15 November 2016, Common indicators for new products and services under Article 15 and for significant changes under Article 49 of EMIR specified the regulators' views on the details of this process.

 

 

Treatment of the CCP-cleared trades under the EMIR reporting framework

 

 

 

Commission Delegated Regulation of 19.10.2016 amending Commission Delegated Regulation (EU) No 148/2013 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories with regard to regulatory technical standards on the minimum details of the data to be reported to trade

 

Recital 2:

 

It is important to also acknowledge that a central counterparty (CCP) acts as a party to a derivative contract. Accordingly, where an existing contract is subsequently cleared by a CCP, it should be reported as terminated and the new contract resulting from clearing should be reported

 

Article 2

Cleared trades

 

1. Where a derivative contract whose details have already been reported pursuant to Article 9 of Regulation (EU) No 648/2012 is subsequently cleared by a CCP, that contract shall be reported as terminated by specifying in field 93 in Table 2 of the Annex the action type "Early Termination", and new contracts resulting from clearing shall be reported.

 

2. Where a contract is both concluded on a trading venue and cleared on the same day, only the contracts resulting from clearing shall be reported. 

 

Article 2 of the Commission Delegated Regulation (EU) No 148/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC deriva­tives, central counterparties and trade repositories with regard to regulatory technical standards on the minimum details of the data to be reported to trade repositories (OJ L 52, 23.02.2013, p. 1) initially stipulated that where an existing contract is subsequently cleared by a CCP, clearing should be reported as a modification of the existing contract.

  

This ruled has been changed in the subsequent amendment - see the box.

 

EMIR reporting rules require to fill in the field "Nature of the reporting counterparty" (Field 7 in the Table 1 (Counterparty Data) of the Annex to the Commission Implementing Regulation (EU) 2017/105 of 19 October 2016 amending Implementing Regulation (EU) No 1247/2012 laying down implementing technical standards with regard to the format and frequency of trade reports to trade repositories according to Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories, where for central counterparties the format "C" is envisioned.

 

The said EU regulations of 19.10.2016 require, moreover, the inclusion of the data on the CCP's identity in the EMIR transaction report (Field 37 (CCP) in the Table 2 (Common data)).

 

In the case of a contract that has been cleared the said Field 32 should indicate the unique code (Legal Entity Identifier ((LEI)) of the CCP that has cleared the contract.

 

It is, moreover, important to note that the field on CCP ID should only be populated with the identifier of a CCP, i.e. a central counterparty which meets the definition of Article 2(1) of EMIR and not in the situation where a derivative contract is cleared by an entity which is not a CCP within the meaning of EMIR (e.g. a clearing house). This interpretation is acknowledged by ESMA in the Q&As on EMIR.

 

 

Eligibility to provide portfolio compression services 

 

 

Portfolio compression services may be provided by CCPs irrespective of whether they are regulated under MiFID/MiFIR (see MiFIR Recital 8).

 

 

CCP clearing vs. diversification requirements

 

 

It is noteworthy, where a firm transfers funds to a CCP in order to pay a margin call the diversification requirement does not apply.

 

In principle, diversification requirements do not apply to client funds placed with the third party merely for the purpose of executing a transaction for the client (Recital 12 of the Commission Delegated Directive of 7.4.2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits).

 

The same applies where an investment firm transfers client funds to a transaction account in order to make a specific transaction for the client.

 

 

CCPs' treatment under REMIT

 

 

CCPs are not considered market participants under the REMIT Regulation as they do not enter into transactions in the wholesale energy markets relevant for REMIT (see ACER's Trade Reporting User Manual (TRUM) Annex III v2.0 of 6 October 2015, p. 3).

 

 

Non-discriminatory access to CCPs (Article 35 of MiFIR) and to trading venues (Article 36 of MiFIR)

 

 

Finally, it is necessary to go back to the issues mentioned at the beginning, which regard competitiveness and access to the CCPs' services.

 

The purpose of strengthening competition and choice between trading venues and CCPs is reflected in the access provisions stipulated in MiFIR (Articles 35 and 36) and EMIR (Articles 7 and 8).

 

The distinction between the above legislative pieces is drawn along the following lines:

 

- derivatives traded only on multilateral trading facilities (MTFs) or other trading facilities (OTFs) as well as executed bilaterally are covered by the access provisions in EMIR;

 

- derivatives that are traded on regulated markets and at the same time on MTFs and/or OTFs and/or outside these trading venues do not fall under the definition of OTC derivatives in EMIR and are covered by the MIFIR access provisions.

 

The safeguards stipulated in Articles 35 and 36 of MiFIR and in the secondary legislation provide CCPs, trading venues, and competent authorities with the possibility to deny access on grounds of undue significant risks that cannot be managed (CCPs and trading venues) or systemic risk considerations (competent authorities).

 

Article 35 of MiFIR grants trading venues the right to have their trades cleared at the CCP of their choice.

 

This provision aims at levelling the playing field on which trading venues compete, and in particular their capability to offer comparable trading and clearing costs.

 

Article 35 of MiFIR focuses on strengthening competition between trading venues by giving them the choice to decide which CCP(s) they want to use for clearing trades executed on their systems.

  

In turn, Article 36 of MiFIR aims at ensuring choice and competition between CCPs by allowing those a right of non-discriminatory access to trading venues.

 

Open access to trading venues may lead to a situation where multiple CCPs clear for one trading venue.

 

A multiple CCP environment will allow customers to choose the CCP that serves their interest best or to consolidate their trade flow into the CCP of their choice.

 

Furthermore, a multiple CCP environment could contribute to reducing systemic risk due to the substitutability of CCPs and avoidance of a single point of failure.

 

In case of the failure of one CCP, other CCPs can continue clearing trades executed on that trading venue and the trading venue is not forced to halt trading in case of a failure of a CCP.

 

While there are multiple cases of CCPs clearing EU equities for various trading venues, in particular for MTFs, there is currently only one case of a CCP clearing ETDs listed on more than one trading venue: LCH.Clearnet Ltd clears index and single Norwegian stock futures and options listed on Oslo Bors and LSEDM. This agreement includes an interoperability scheme with SIX-x Clear and is operational since March 2014 (Risk Assessment on the temporary exclusion of exchange traded derivatives from Articles 35 and 36 of MiFIR of exchange traded derivatives from Articles 35 and 36 of MiFIR, 04 April 2016, ESMA/2016/461). However, pursuant to the said document, it is unclear whether this agreement would be covered by the MiFIR access provisions as this would only be the case where it concerns a voluntary interoperability requirement.

 

The aforementioned ESMA's document of 4 April 2016 also refers to the fact that the current absence of a recovery and resolution regime for CCPs may lead to significant implications in case of the default of an interoperable CCP.

 

See Commission Delegated Regulation (EU) of 24.6.2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards on clearing access in respect of trading venues and central counterparties, C(2016) 3807 final.

 

 

Non-discriminatory and transparent clearing fees charged by CCPs

 

 

Pursuant to Article 10(1) of the Commission Delegated Regulation (EU) 2017/581 of 24 June 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards on clearing access in respect of trading venues and central counterparties a CCP shall only charge fees for clearing transactions executed on a trading venue to which it has granted access on the basis of objective criteria, applicable to all clearing members and, where relevant, clients.

 

For this purpose, a CCP shall make all clearing members and, where relevant, clients subject to the same schedule of fees and rebates and its fees shall not depend on the trading venue where the transaction takes place.

 

 

Perspectives for the CCP's legal framework

 

 

What is ahead of the CCPs' legal infrastructures can be guessed from:

 

- the European Commission's Proposal of May 2017 for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories, COM(2017)208,

 

- the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs, 13.06.2017 (see boxes below).

 

 

 

New

  

EMIR reform propositions on CCPs 

May 2017

 

 

according to the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories, COM(2017)208, May 2017, IP/17/1150, 4 May 2017

 

   

 

 

numbering blue   CCPs required to provide their members with simple tools allowing them to simulate the amount of collateral requested to clear future trades

 

 

 

numbering blue   CCPs required to make available a thorough description of their initial margin models to their clearing members

 

 

 

numbering blue   Institutions offering clearing service must do so under fair, reasonable and non-discriminatory (FRAND) commercial terms

 

 

 

numbering blue   Assets and positions recorded in clients' accounts will not be considered to be part of the CCP's or clearing member's insolvency estate

 

 

 

 

 

Another important thread is the foreseen withdrawal of the United Kingdom from the EU with the effect a substantial volume of transactions denominated in euro ceasing to be cleared in the EU and no longer subject to EMIR and the EU supervisory architecture (the bulk of EU clearing is through LCH owned by the London Stock Exchange Group (Bloomberg, Equivalence becoming urgent)).

 

In the Proposal of 13 June 2017 for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs, the European Commission envisioned a new “two tier” system for classifying third-country CCPs.

 

According to the said document:

 

- non-systemically important CCPs would continue to be able to operate under the existing EMIR equivalence framework but Tier 2 systemically important CCPs would be subject to stricter requirements,

 

- as regards these limited number of Tier 2 CCPs, the European Commission, upon request by ESMA and in agreement with the relevant central bank, can decide that a CCP will only be able to provide services in the Union if it establishes itself in the EU.

 

 

 

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs, 13.06.2017

 

Classification of non-systemically important third-country CCPs (Tier 1) and systemically important third-country CCPs (Tier 2)


In view of the global increase in clearing and concentration of risk in a limited number of global CCPs, a differentiation needs to be introduced according to the type of third- country CCP recognised under EMIR.This proposal therefore requires that, when considering an application for recognition, ESMA will need to consider the degree of systemic risk presented by a third-country CCP. In order to achieve this, and to introduce a proportionate application of the requirements, a distinction needs to be made between lower risk CCPs and those that are, or will be, systemically important for the Union or one or more of its Member States. This reflects the fact that not all third-country CCPs are of equal systemic importance. This will depend on their scope and type of transactions cleared as well as the volume of their clearing activity. For example, a relatively small third-country CCP that clears only a limited number of contracts that are, for example, denominated in local currency will objectively pose fewer concerns and less risk to the Union's financial system than a third-country CCP that clears significant volumes of contracts that are denominated in a Union currency.


It is therefore proposed that ESMA has the power to distinguish between CCPs that are, or are likely to become systemically important and those that are not. Third-country CCPs that ESMA has determined as non-systemically important or not likely to become systematically important for the Union and the Member States are referred to as 'Tier 1' (Point (a) of Article 2(9) inserts point (e) in Article 25(2) of EMIR). These Tier 1 CCPs will continue to be subject to the current arrangements and conditions for third-country equivalence decisions adopted by the Commission, and which allow ESMA to recognise individual third-country CCPs. ESMA will also be tasked with new responsibilities in relation to the supervision over these recognised Tier 1 CCPs.


In contrast to Tier 1 CCPs, ESMA will also be able to determine a different category of third- country CCPs which are deemed to be systemically important or likely to become systemically important in the near future for the financial and economic stability of the Union and of the Member States (so called 'Tier 2 CCPs').This is provided for in point (c) of Article 2(9) which inserts a new paragraph (2a) in Article 25 of EMIR.


In order for ESMA to determine whether a third-country CCP is a 'Tier 2' CCP, four objective criteria are provided for (new Article 25(2a)):


(i) the nature, size and complexity of the third-country CCP's business;


(ii) the effect that the failure of, or a disruption to, the third-country CCP would have on critical markets, financial institutions, or the broader financial system and on the financial stability of the EU;


(iii) the third-country CCP's clearing membership structure, and


(iv) the third-country CCP's relationship, interdependencies, or other interactions with other financial market infrastructures.


These criteria will need to be further specified by the Commission in a delegated act (second subparagraph of Article 25(2a)) within six months of the adoption of the Regulation.


The consequence of ESMA determining a third-country CCP to be a Tier 2 CCP is that that CCP can only be recognised and permitted to provide clearing services or activities in the Union if it meets further conditions. These conditions are necessary to reflect the additional concerns that arise for the financial stability to the Union and one or more of the Member States. CCPs that have already been recognised under the current EMIR regime will continue to be recognised as 'Tier 1' CCPs until ESMA has determined whether such third-country CCPs are 'Tier 2' CCPs.

 

...

 

Proportionate requirements for systemically important Tier 2 third-country CCPs


The additional requirements that systemically important third-country CCPs must fulfil are fourfold (See point (b) of Article 2(9)):


(i) ongoing compliance with the relevant and necessary prudential requirements for EU-CCPs. These requirements concern capital requirements, requirements for the internal organisation management, conduct of business, margins, default fund, financial resources, liquidity, investments, stress tests, settlement and interoperability. They are currently set out in Article 16 and in Titles IV and V of EMIR;


(ii) written confirmation – within 180 days – from the relevant EU central banks of issue that the third-country CCP complies with any requirements imposed by those central banks. Those additional requirements would be imposed by the central banks in the exercise of their monetary policy tasks. By way of example, they could include additional requirements to address risks for liquidity, payment or settlement arrangements in the Union or Member States. In more particularity they could concern the availability and specific type of collateral held within a CCP, the level of any 'haircuts' applied to collateral, investment policy or collateral segregation, the availability of liquidity arrangements between central banks involved, the potential impact of the CCP's operations and the implications of their possible disruption or failure for the financial system and stability of the Union.


(iii) to enable ESMA to exercise its new supervisory responsibilities there must also be written consent by the third-country CCP that ESMA may access any information held by the CCP and may access any of its business premises upon request. Naturally, this needs to be able to be enforced in the third country, and a legal opinion should be available confirming that this is the case;


(iv) the third-country CCP should have all the necessary procedures and measures to be able to comply with the first and third condition above.


As the requirements above need to be applied in a proportionate manner, the proposal introduces a system according to which a third-country CCP may continue to rely on the rules and requirements in its own country. This new system of comparable compliance – which complies with FSB standards and reflects a similar system applied by the US authorities – relies on a simple procedure under which the third-country CCP can request ESMA to compare EMIR's requirements and EU supervisory standards for CCPs with those of the third country. Where comparable, ESMA may determine that the application of some or all of the requirements in place as well as the corresponding supervisory enforcement in that third country provides a comparable outcome to the application of EMIR and waive the application of corresponding EMIR provision. This approach will significantly reduce any burdens resulting from dual application of rules and requirements. The Commission will be required to adopt a delegated act to specify the details of assessment that ESMA carries out (new Article 25a).


However, in view of the growing concentration of clearing services in a limited number of global CCPs, and the increased risk which that concentration entails, some CCPs may be of specifically substantial systemic significance for the EU financial system. Therefore, when making its determination whether a third-country CCP is, or is likely to become, systemically important, ESMA may also determine, in agreement with the relevant EU central bank(s), that the risks posed by that entity to the Union's financial stability or to one or more of the Member States are of such magnitude that even a system of full application of EMIR to this third-country CCP is not enough to sufficiently mitigate such risks and that it should therefore not be recognised. Where such determination that the challenges for safeguarding financial stability in the EU that cannot be addressed through the recognition process of third-country CCPs is made, it is proposed that ESMA, in agreement with the relevant EU central banks, has the power to recommend to the Commission, that that CCP should not be recognised. On that basis, the Commission is empowered to take a decision that that CCP should not be recognised and if it wishes to provide clearing services in the Union, it should be authorised and established in one of the Member States (new paragraph (2c) of Article 25).

 

 

 

Overall, central clearing still gains in importance. According to the Commission Staff Working Document of 13 June 2017 (Impact Assessment Accompanying the document Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and the requirements for the recognition of third-country CCPs, SWD/2017/0246 final - 2017/0136 (COD)) around 62% of the global value of all OTC derivatives contracts and asset classes (interest rates, credit default, foreign exchange, etc.) is centrally cleared by CCPs, which is equivalent to $337 trillion.

 

About 97% ($328 trillion) of all centrally-cleared derivatives contracts are interest-rate derivatives.

 

At the end of 2009, about 36% of all OTC interest-rate derivatives were centrally cleared, while the corresponding figure by the end of 2015 was 60%.

 

When it comes to the credit derivatives (so-called CDS) market, the proportion of outstanding CDSs cleared through CCPs is increasing steadily since these data were first reported, i.e. from 10% at the end of June 2010 to 37% at end the end of June 2016.

 

 

 

Questions and Answers on MiFID II and MiFIR market structures topics, 7 July 2017, ESMA70-872942901-38

 

Question 1 [Last update: 07/07/2017]


When should CCPs notify the transitional arrangements foreseen in Article 35(5) of MiFIR?

 

Answer 1


Article 35(5) of MiFIR does not establish any timing other than indicating that CCPs must submit their notification before the application of MiFIR. However, given the amount of arrangements necessary for the transition to MiFID II/MiFIR and the risk of ‘bottlenecks’, ESMA encourages CCPs that meet the requirements set out in Article 35(5) of MiFIR and are considering applying for the transitional arrangements to do so as early as possible during the course of 2017. In any case, ESMA recommends that CCPs should notify their intention to make use of the temporary opt-out under Article 35(5) of MiFIR no later than 30 September 2017.


Question 2 [Last update: 07/07/2017]


Is a CCP using an open offer trade acceptance model obliged to accept a request for access from a trading venue using a novation trade acceptance model?


Answer 2


Yes, a CCP using an open offer trade acceptance model that receives a request for access from a trading venue using a novation trade acceptance model should grant that access unless it can identify how precisely the simultaneous use of an open offer and a novation trade acceptance model would give rise to significant undue risks that cannot be managed.

 

 

 

 

 

 

  

chronicle

 CCPs - regulatory chronicle 

  

 

 

 

 

3 October 2019

 

ESMA Consultation Paper, Draft technical advice on commercial terms for providing clearing services under EMIR (FRANDT), ESMA70-151-2672

 

28 May 2019

 

ESMA consults on tiering, comparable compliance and fees under EMIR 2.2, 28 May 2019, ESMA71-99-1159

 

Consultation Paper, Draft technical advice on criteria for tiering under Article 25(2a) of EMIR2.2, ESMA 70-151-2138

 

Consultation Paper, ESMA fees for Third-Country CCPs under EMIR 2.2, ESMA70-151-1663

 

Consultation Report, Technical Advice on Comparable Compliance under article 25a of EMIR, ESMA70-151-2179

 

5 April 2019

 

The ESMA has announced that it has adopted new recognition decisions for the three CCPs established in the United Kingdom to reflect the extension to the Article 50 of the Treaty of the European Union (TEU) period to 12 April 2019.

 

19 December 2018

 

Commission Implementing Decision (EU) 2018/2031 determining, for a limited period of time, that the regulatory framework applicable to central counterparties in the United Kingdom of Great Britain and Northern Ireland is equivalent, in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council

 

 

 

 

 

 

IMG 0744

    Documentation    

 

 

 

 

 

Commission Implementing Decision (EU) 2018/2031 of 19 December 2018 determining, for a limited period of time, that the regulatory framework applicable to central counterparties in the United Kingdom of Great Britain and Northern Ireland is equivalent, in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council

 

ESMA Opinion, CCP Liquidity Risk Assessment under Article 44(1) of Commission Regulation (EU) No 648/2012, 22 June 2018, ESMA70-151-1149

 

Report, EU-wide CCP Stress Test 2017, 02 February 2018, ESMA70-151-1154

 

Questions and Answers (Q&A) ESMA CCP Stress Test, 02 February 2018, ESMA70-151-1179

 

Final Report, Guidelines on CCP conflict of interest management, 07 February 2018, ESMA70-151-1094

 

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs, 13.06.2017 

 

Commission Staff Working Document Impact Assessment Accompanying the document Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and the requirements for the recognition of third-country CCPs, SWD/2017/0246 final - 2017/0136 (COD), 13.06.2017

 

Commission Implementing Regulation of 6.6.2017 on the extension the transitional periods related to own funds requirements for exposures to central counterparties set out in Regulations (EU) No 575/2013 and (EU) No 648/2012 of the European Parliament and of the Council C(2017) 3691

 

Questions and Answers on MiFID II and MiFIR market structures topics, 7 July 2017, ESMA70-872942901-38

 

Consultation Paper, ESMA’s Guidelines on CCP conflicts of interest management, 01 June 2017, ESMA70-151-291

 

Commission Delegated Regulation (EU) 2017/582 of 29 June 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards specifying the obligation to clear derivatives traded on regulated markets and timing of acceptance for clearing (OJ L 87, 31.3.2017, p. 224–228)

 

Commission Delegated Regulation (EU) 2017/581 of 24 June 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards on clearing access in respect of trading venues and central counterparties, OJ L 87, 31.3.2017, p. 212–223

 

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories, COM(2017)208, May 2017

 

Proposal for a Regulation of the European Parliament and of the Council on a framework for the recovery and resolution of central counterparties and amending Regulations (EU) No 1095/2010, (EU) No 648/2012, and (EU) 2015/2365 (2016/0365 (COD)), 28.11.2016

 

List of CCPs that have been authorised to offer services and activities in the Union and classes of financial instruments covered by the CCP's authorisation, last update 19 September 2016

 

ESMA's Opinion, Portfolio margining requirements under Article 27 of Commission Delegated Regulation (EU) No 153/2013, 10 April 2017, ESMA70-708036281-18

 

List of third-country central counterparties recognised to offer services and activities in the Union and classes of financial instruments covered by the CCP's recognition, last update: 14 December 2016

 

CCPs authorised or recognised to clear the classes of OTC derivatives subject to the clearing obligation and dates from which the clearing obligation takes effect, last update 7 October 2016

 

Commission Delegated Regulation (EU) No 153/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on requirements for central counterparties Text with EEA relevance

   

Commission Implementing Regulation (EU) No 1249/2012 of 19 December 2012 laying down implementing technical standards with regard to the format of the records to be maintained by central counterparties according to Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (OJ L 352, 21.12.2012, p. 32–39)

 

Commission Delegated Regulation of 21.4.2016 amending Delegated Regulation (EU) No 153/2013 as regards the time horizons for the liquidation period to be considered for the different classes of financial instruments

 

Commission Delegated Regulation (EU) No 876/2013 of 28 May 2013 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on colleges for central counterparties

 

Questions and Answers (Q&A) on ESMA's EU-wide stress tests for CCPs, 29 April 2016, ESMA/2016/665

 

Peer Review under EMIR Art. 21, Supervisory activities on CCPs' Margin and Collateral requirements, 22 December 2016, ESMA/2016/1683

 

Final Report Review of Article 26 of RTS No 153/2013 with respect to MPOR for client accounts, 4 April 2016, ESMA/2016/429

 

Report EU-wide CCP Stress test 2015, 29 April 2016, 2016/658

  

Practical Guidance For the recognition of third-country CCPs by ESMA, 17 March 2016 (ESMA/2016/365)

 

ESMA's Discussion Paper, Review of Article 26 of RTS No 153/2013 with respect to client accounts, 26 August 2015 (ESMA/2015/1295)

 

EMIR Review Report no. 4 of 13 August 2015 - ESMA input as part of the Commission consultation on the EMIR Review (2015/1254)

 

Risk Assessment on the temporary exclusion of exchange traded derivatives from Articles 35 and 36 of MiFIR of exchange traded derivatives from Articles 35 and 36 of MiFIR, 04 April 2016, ESMA/2016/461

 

Consultation Paper Indirect clearing arrangements under EMIR and MiFIR, 5 November 2015, ESMA/2015/1628

 

Final Report Draft regulatory technical standards on indirect clearing arrangements under EMIR and MiFIR, 26 May 2016, ESMA/2016/725

 

Committee on Payments and Market Infrastructures, Board of the International Organization of Securities Commissions, Consultative Report, Resilience and recovery of central counterparties (CCPs): Further guidance on the PFMI, August 2016

 

Principles for Financial Market Infrastructures (PFMI) 

 

Steven Maijoor, Chair of the European Securities and Markets Authority, PRIME Finance 6th Annual Conference, Keynote speech The Hague, 23 January 2017ESMA71-844457584-329

 

Steven Maijoor, Recovery and Resolution of CCPs: let's bring the lifeboats in place, Banque de France's policy conference on Recovery and Resolution of CCPs – Paris, 24 June 2016 24, ESMA/2016/1002

 

EBA and ESMA Report on the functioning of the Regulation (EU) No 575/2013 (CRR) with the related obligations under Regulation (EU) No 648/2012 (EMIR), ESAS-2017-82, 11 January 2017

 

ESMA's Letter of 27 January 2017 to the European Commission on the EMIR Review and ESMA sanctioning powers under EMIR and CRAR, ESMA70-708036281-19

 

Methodological Framework, 2017 EU-wide CCP Stress Test Exercise, 01 February 2017, ESMA70-708036281-51

 

ESMA's supervision of credit rating agencies, trade repositories and monitoring of third country central counterparties, 2016 annual report and 2017 work programme, 3 February 2017, ESMA80-1467488426-27

 

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, reporting and disclosure requirements and amending Regulation (EU) No 648/2012, 23.11.2016, COM(2016) 850 final 2016/0360 (COD)

 

Commission Staff Working Document, EU equivalence decisions in financial services policy: an assessment, 27.2.2017 SWD(2017) 102 final, p. 15

 

Commission Delegated Regulation (EU) of 24.6.2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards on clearing access in respect of trading venues and central counterparties, C(2016) 3807 final

 

Report from the Commission to the European Parliament and the Council on the need to temporary exclude exchange-traded derivatives from the scope of Articles 35 and 36 of the Regulation (EU) No 600/2014 on markets in financial instruments

 

 

 

 

clip2

    Links    

 

 

 

 

 

ESMA's website on CCPs

 

ESMA registers website

 

Central clearing: trends and current issues, Dietrich Domanski, Leonardo Gambacorta and Cristina Picillo, 6 December 2015, Bank for International Settlements

 

Client segregation and portability under EMIR

 

Individual client account

 

Net omnibus client account

 

Gross omnibus client account

 

Initial margin

 

Variation margin

 

Indirect clearing

 

Clearing obligation under EMIR

 

OTC interest rate derivatives' mandatory clearing

 

Principal-to-principal clearing model

 

 

 

 

 

 

 

Last Updated on Thursday, 03 October 2019 18:45
 

Search

TwitterFacebookLinkedin
Copyright © 2009 - 2019 Michal Glowacki. All rights reserved.
The materials contained on this website are for general information purposes only and are subject to the disclaimer