Securities Financing Industry News | Trade associations call for extension of EC equivalence for UK CCPs


The International Swaps and Derivatives Association (ISDA) and eight other trade associations have sent a letter to European Commission (EC) Commissioner Mairead McGuiness, asking the EC to extend its equivalency decision to UK central counterparties (CCPs).

This equivalency decision is due to expire on June 30, but the associations are asking the EC to provide clarification as soon as possible and well before March 2022.

According to the associations, this prevents negative financial, commercial, operational and equal opportunities effects on EU counterparties and clearing members and will allow continued access to global liquidity pools after June 30, 2022.

The associations fear that if the commission allows the time-limited equivalency decision to expire, EU clearing members “would lose access to UK CCPs which were deemed to be of such systemic importance that they would not. can no longer be recognized “.

EU clearing members would also lose access to UK CCPs which are not systemically important and which might otherwise benefit from recognition under the European Market Infrastructures Regulation (EMIR) 2.2.

“The current uncertainty faced by clearing members of the EU and their clients is already having a negative impact on their clearing activity,” underline the associations.

“If the committee is considering allowing the time-limited equivalency decision to expire, we would also be happy to discuss any solutions the committee is considering to mitigate any potential market disruption that may result and the time that may result. be necessary to develop and implement these solutions.

The associations argue that the use of a UK and EU central counterparty (CCP) will increase costs and remove opportunities to clear transactions.

“In the event that the equivalence decision lapses, concerns remain.
on the impacts that a large simultaneous liquidation of positions with UK CCPs (and
the corresponding opening of positions at EU central counterparties) would have on the market, ”say the associations.

“Other concerns include market fragmentation and the lack of liquidity of EU CCPs, as well as concern about increasing costs and reducing risk pooling. “

In addition, the associations claim that no longer allowing UK CCPs to gain recognition in the EU would limit the direct supervision and visibility that the European Securities and Markets Authority (ESMA) and the relevant national authorities in the EU. The EU would otherwise have had cleared derivatives on the world markets. UK.

This is because ESMA would cease to have a supervisory role vis-à-vis UK CCPs and EU National Competent Authorities (NCAs) would cease to have a role in UK CCP colleges of supervisors.

Elsewhere in the letter, the associations suggest that the commission, and in particular ESMA, should carefully consider the potential impact on financial stability of substantial and systemically important clearing services provided in the EU by non-central counterparties. European.

The associations remain convinced that EMIR 2.2, with its new and improved recognition framework, gives ESMA the appropriate powers to deal with financial stability issues that may be identified.

“We urge the committee to address its concerns about the systemic importance of UK CCPs by building on the enhanced supervisory powers EMIR 2.2 gives to ESMA and central banks of issue with respect to CCPs level 2 (in conjunction with the enhanced memorandum of understanding between ESMA and the Bank of England).

Professional associations that co-signed the letter with ISDA include the Alternative Investment Management Association, the Association for Financial Markets in Europe, the European Association of Public Banks, the European Banking Federation, the European Fund Management Association and assets, the Futures Industry Association. , the Investment Company Institute and the Asset Management Group of the Securities Industry and Financial Markets Association.

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