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ESRB supports ESMA consultation on EMIR clearing of FX NDF

On 6 November 2014, the European Systemic Risk Board (ESRB) published its response to ESMA’s consultation paper (ESMA/2014/1185) on regulatory technical standards (RTS) on foreign-exchange non-deliverable forwards (FX NDF) under Article 5(2) of EMIR (please see earlier blog).

In its response, the ESRB reaffirmed its support for ESMA’s proposal of applying mandatory central clearing to the OTC derivatives classes and offered some sensible recommendations. The ESRB suggested including information specifically to the European FX NDF Market to provide a clearer perspective in the assessment of the systemic risk implications of the FX NDF market in the EU.  ESMA used data on NDF transactions which reflected transactions executed mainly by US and global counterparties.  They acknowledged the difficulties in obtaining this information and offered alternative sources such as data from trade repositories.

This limitation, ESRB noted, may also hinder the consistency of application of the clearing obligation across asset classes. In this respect, they encouraged the gathering of data which adequately reflects the size and structure of individual segments of the EU market.

More generally, the ESRB sought “enhanced coherence” of the clearing obligation process including an overall timetable for the assessment of a clearing obligation for the different OTC derivative classes and more feedback from the point of view of stakeholders.

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