Industry associations have responded to the European Commission’s proposed changes to the European Market Infrastructure Regulation (EMIR) that aim to make clearing of derivatives products in the European Union more attractive.
The four trade bodies, namely the Alternative Investment Management Association (AIMA), the European Fund and Asset Management Association (EFAMA), the Futures Industry Association (FIA) and the International Swaps and Derivatives Association (ISDA), have issued a collective statement arguing that the proposed changes under EMIR 3.0 would “further reinforce the positive trends already observed in the clearing of euro-denominated contracts at EU CCPs.”
“A strategy based on organic growth and market-driven solutions would best support the competitiveness of EU CCPs in a global clearing marketplace,” says the associations.
This includes proposals under EMIR 3.0 to streamline regulatory oversight for new product approvals at EU CCPs, along with steps to facilitate the availability of cross-border intragroup transaction exemptions.
It also embraces amendments to the UCITS directive and Money Market Funds Regulation to encourage further clearing of OTC derivatives.
However, the associations question proposals that they believe would make EU firms less competitive and would have negative impact on the operation of derivatives markets, clearing members and their clients.
Specifically, the EMIR 3.0 proposal indicates that firms subject to the EU clearing obligation should have an active account at a EU CCP, while also providing powers to the European Securities Markets Authority (ESMA), via secondary regulations, to define the percentage of euro- and zloty-denominated contracts that should be cleared through those accounts.
The associations indicate that amendments to capital adequacy rules will reinforce these changes, making it less commercially viable to clear contracts through CCPs outside of the EU.
“We remain convinced that these measures, as proposed, would be harmful to EU capital markets,” says the joint associations.
“For EU firms, this would not only hinder their ability to provide best execution to clients, but would also be costly to implement. We believe the EC should substantiate the risk of clearing through tier-two CCPs based outside of the EU and provide robust cost-benefit analysis of the proposed active account requirements.”
