Suggested measures, obliging EU-based firms to clear a certain portion of their derivatives contracts at EU-based CCPs, “would be harmful to EU capital markets”. This is jointly stated by four heavy industry associations – ISDA, AIMA, EFAMA, and FIA – in response to the European Commission’s proposal in December for amendments to the European Market Infrastructure Regulation (EMIR).
“We remain convinced that these measures, as proposed, would be harmful to EU capital markets. They would make EU firms less competitive and would have a negative impact on the derivatives market, EU clearing members and their clients, EU investors and savers, and the Capital Markets Union,” say the organizations in unison, in a press release.
With their full names spelled out, they are …
• the International Swaps and Derivatives Association, Inc. (ISDA),
• the Alternative Investment Management Association (AIMA),
• the European Fund and Asset Management Association (EFAMA) and
• the Futures Industry Association (FIA).
“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 the EU and provide a robust cost-benefit analysis of the proposed active account requirements,” they conclude.
Not all negative
This noted, there are also other aspects of the EMIR 3.0 proposal which they view favourably.
“The EC has taken some important steps towards strengthening the competitive position of Europe’s growing derivatives markets in the EMIR 3.0 proposal. The amendments address the efficiency and resilience of financial market infrastructure in the EU,” they write, listing what it sees as positive points, including proposals to streamline supervisory practices for new EU central counterparty product approvals, and efforts to facilitate the availability of cross-border intragroup transaction exemptions, among others.
“Such measures 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,” the four associations note.
Notably, decisions by the EU to incentivise intra-EU clearing could move clearing volumes from LCH (owned by the London Stock Exchange) to Eurex (owned by Germany’s Deutsche Börse). We have touched upon this in previous news articles, including this one (“Third quarter saw top scores in derivatives clearing”) and this one (“EU zooms its clearing ambition onto three derivatives but keeps details blurry”).