ISDA supports the principle of increasing the attractiveness of clearing in Europe. Key to this is ensuring these services are efficient, properly supervised and well regulated.
ISDA notes the concerns expressed by the European Commission (EC) about reliance on non-EU jurisdictions and the desire to further develop the EU’s own financial infrastructure, particularly in light of Brexit. The EU should pursue a positive agenda to achieve this – one that creates a framework that fosters a competitive EU financial center, equips the EU with an open market structure commensurate with its status as home of the world’s second reserve currency, and enables market participants to choose between different services that meet their needs.
The EU’s clearing objectives can be achieved and its concerns addressed by pursuing this positive agenda. All stakeholders should seek to make the EU a place where market participants want to clear and choose to come to, rather than building barriers to accessing non-EU services.
This perspective has been echoed by the EC, including Mairead McGuinness, EC commissioner for financial services, financial stability and capital markets union (CMU), in her stated aim to “make the EU more attractive as a competitive and cost-efficient clearing hub, and so incentivize an expansion of central clearing activities in the EU”.
ISDA has proposed 15 specific and implementable actions that, taken together, would represent a positive and comprehensive strategy to boost the attractiveness of the EU clearing market.
Widen the range of market participants clearing in Europe:
Enable pension scheme arrangements (PSAs) to centrally clear;
Promote voluntary clearing by public entities;
Recalibrate the Undertakings for Collective Investment in Transferable Securities (UCITS) counterparty exposure limits to distinguish between cleared and non-cleared trades;
Amend the Settlement Finality Directive (SFD) and Financial Collateral Directive (FCD) to expand eligible participants and collateral.
Give European central counterparties (CCPs) a competitive edge:
Pursue an approach to regulation of EU CCPs that supports competitiveness and innovation;
Provide harmonized central bank access for EU CCPs;
Support bankruptcy-remote initial margin (IM) with regulation;
Improve EU CCP operational processes;
Expand European Central Bank (ECB) operating hours of Target 2 (T2) and Target 2 Securities (T2S);
Encourage the EC to promote anti-procyclicality tools for collateral haircuts, which will boost confidence in EU CCPs;
Remove unnecessary barriers to clearing in Europe:
Harness the potential of post-trade risk reduction (PTRR) services;
Protect intragroup transactions;
Prevent duplicative and conflicting requirements for international firms;
Promote international openness by amending rules on recognition of third-country CCPs;
Fill gaps in crisis management powers over systemic CCPs.
Not all of these measures require legislative change, and some could be implemented relatively quickly – for instance, steps to nudge public entities to clear, an operational decision to widen the T2 window and some practical adjustments to supervisory approaches. EU CCPs are already working to improve operational processes.
At the same time, this is a comprehensive agenda, and all the components have a role to play. Individual steps will not guarantee an immediate increase in the EU share of euro clearing, but the roadmap as a whole should deliver enduring, positive change.