The European Stability Mechanism (ESM) has selected Eurex Clearing as its CCP for the voluntary clearing of over-the-counter (OTC) interest rate swaps (IRS). Eurex Clearing states in a press release that this move by ESM supports the building of an alternative liquidity pool within the EU, “underlines the importance of central clearing for financial stability and efficiency”, and contributes to the objectives of the European Market Infrastructure Regulation (EMIR 3.0).
The ESM is an inter-governmental institution set up in 2012 to provide financial assistance to EU member states experiencing severe financial problems. With 20 member states as shareholders, its goal is to “safeguard financial stability in the eurozone”. Assistance to member states is financed by issuing bonds and other debt instruments. Interest rate swaps are “essential instruments for the ESM to manage its financial obligations and ensure cost-effective lending programmes”.
“By clearing its OTC IRS through an EU clearing house, ESM is taking proactive steps to mitigate counterparty risk, reduce risk management costs, and further streamline its operational processes,” writes Eurex Clearing. “Its decision in line with the EU Commission’s call to public sector entities in EMIR 3.0 will increase the scope of active players and strengthen the EU based clearing environment, making an important contribution to enhancing safety and strategic sovereignty.”
