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ESMA launches consultation on mandatory clearing of swaps

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  • The European Commission

Two consultation papers have been published by the European Securities and Markets Authority (ESMA) on draft regulatory technical standards (RTS) for the clearing of interest rate swaps (IRS) and credit default swaps (CDS).

The European regulator is developing the standards as part of the European Markets Infrastructure Regulation (EMIR), which is aimed reducing systemic risk.

ESMA said it had analysed the two classes of derivative instrument and decided some IRS and CDS classes should be subject to the clearing obligation in central clearing houses (CCPs).

ESMA said it was required to draft the technical standards on the clearing obligation within six months of CCPs being authorised or recognised.

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Because of the difference in timing of the corresponding CCP authorisations, it said the IRS and CDS classes were covered in two separate papers and consultation periods. 

There was a large overlap between the two to give stakeholders the chance to review them and give feedback at the same time, it said. 

The regulator also said the two consultation papers might be followed by more on other asset classes.

Within IRS, ESMA’s draft standards propose that basis, fixed-to-float, forward-rate agreements and overnight index swaps should be centrally cleared.

Within CDS, European untranched index CDS — for two indices — should be centrally cleared, according to the draft standards.

However, ESMA decided equity and interest-rate futures and options did not need a clearing obligation at this stage.

The IRS consultation paper is open for feedback until 18 August, while the CDS paper is open until 18 September.

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