The International Swaps and Derivatives Association (ISDA), the Alternative Investment Management Association (AIMA), the European Fund and Asset Management Association (EFAMA) and the Futures Industry Association (FIA) have published a response to the European Commission’s proposed amendments to the European Market Infrastructure Regulation (EMIR) to make derivatives clearing in the EU more attractive, known as EMIR 3.0.
“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,” the associations stated.
These include proposals to streamline supervisory practices for new EU central counterparty (CCP) product approvals, efforts to facilitate the availability of cross-border intragroup transaction exemptions, and amendments to the Undertakings for Collective Investment in Transferable Securities Directive and Money Market Funds Regulation to incentivize clearing of over-the-counter (OTC) derivatives, they added.
“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 response said.
However, the EC has proposed that firms subject to the EU clearing obligation should have an active account at an EU CCP, while giving the European Securities and Markets Authority (ESMA) the power to define the portion of certain euro- and Polish zloty-denominated contracts that should be cleared through those accounts via secondary regulation.
”Changes to capital rules would reinforce this, making it less commercially viable for EU market participants to clear throughCCPs based outside the EU,’ the four associations claimed.
“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,” they continued.
For EU firms, this would not only hinder their ability to provide best execution to clients, but would also be costly to implement, they said.
“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.”