3rd Country CCP’s- Confusion reigns
An interesting article in Risk magazine highlights the conjunction between EMIR 3rd Country CCP RTS and the CRR risk weightings. EMIR mandates that CCP’s have to apply to ESMA by 15th September, to benefit from a 180 day grace period during which they will be temporarily recognised as a QCCP. If they lack QCCP status, the CCP’s European members and their foreign branches, will be barred from dealing through them. The already urgent situation is made considerably more consequential by the CRR risk weighting regime[1]. Exposure to a QCCP will incur a 2% weighting, while exposure to a non-qualifying CCP will be subject to a standard credit risk model- attracting up to a 50% weighting. The article mentions a number of CCP’s who have confirmed that they will apply before the deadline[2], but also gives the example of the CDCC. The Canadian clearer has subsidiaries of HSBC, Deutsche Bank and BNP Paribas among its members, but has preferred legal opinion as to its ineligibility to be “qualified” under EMIR- seemingly oblivious to the CRR consequences.
It should come as no surprise that while trying to stay afloat in the stormy waters of US and European legislation, even the most expensively-advised market participants are not attending to the shark below them. Basel III looks set to be even more consequential and potentially disruptive than its kennelmates- EMIR and Dodd-Frank.
[1] The CRR also takes in affiliated subsidiaries, obviating a potential loophole in the EMIR QCCP requirement which applies to foreign branches but not subsidiaries.
[2] The 9 3rd Country CCP’s who have applied are:: The Japan Securities Clearing Corporation, Singapore Exchange, Switzerland’s Six Group, Safcom in South Africa, Mexico’s MexDer, the United States’ DTCC Fixed Income Clearing Corporation, National Securities Clearing Corporation, Ice Clear US and Ice Clear Credit. The following CCP’s have indicated that will apply to ESMA before the deadline: the CME and the Dubai Gold & Commodities Exchange