ISDA fosters safe and efficient derivatives markets. We believe that the EU should work towards strengthening the competitiveness of Europe’s growing derivatives markets by advancing the EU’s attractiveness, reducing market fragmentation and upholding a global level playing field for European firms as laid out in our Whitepaper ‘’A Roadmap to Make European Clearing More Attractive.”[1]

In the EMIR 3 proposal, the European Commission (Commission) took important steps to advance these objectives. Removing equivalence as a pre-condition to the availability of the intragroup transaction exemption will avoid market fragmentation and have a positive impact on how the EU is perceived in terms of market openness and attractiveness. Streamlining EU Central Counterparties (CCPs) supervisory procedures for launching new products and model changes will make EU CCPs more attractive and lead to more clearing in the EU.

Nevertheless, these positive measures have been largely undermined by the proposals to introduce the requirement for EU market participants to clear a proportion of their transactions in certain derivatives at active accounts at EU CCPs, as well as additional prudential measures (Pillar 2 tools). Measures to require clearing participants (clearing members and their clients, including end users) to use EU CCPs for a proportion of their business, especially if not adequately calibrated, are unnecessary, would make EU firms less competitive than third-country firms and would be damaging to the overall derivatives market, EU clearing participants and to the Capital Markets Union (CMU) more broadly. Ultimately, these measures, as proposed, will hurt European pension savers and investors. They may also have the undesired outcome of dissuading market participants from clearing transactions which would otherwise be clearable.

On the uncleared side, the removal of the only means EU firms have to prevent their clients from having to comply with two sets of rules with respect to risk management requirements is an unintended consequence of the deletion of Article 13 of EMIR. The lack of clarity on the scope and purpose of the power granted to the Commission to adopt a delegated act identifying additional third countries whose entities may not benefit from the intragroup exemptions will also introduce uncertainty for firms and is inconsistent with the aim of reducing market fragmentation.

Finally, there are two areas where the objectives of efficient, competitive and safe European derivatives markets could have been advanced further as part of this EMIR Review. Making permanent the current temporary exemption from margin requirement for equity options would ensure a global level playing field and enable EU firms to continue to compete globally. Implementing ESMA’s 2020 recommendations on Post Trade Risk Reduction (PTRR) services would significantly strengthen the resilience of Europe’s growing derivatives markets by reducing operational and liquidity risk in derivatives business in the EU.

[1] https://www.isda.org/2022/10/19/a-roadmap-to-make-european-clearing-more-attractive/