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EU 3rd Country clearing as clear as mud

An interesting article in yesterday’s Risk magazine highlights the potentially very costly confusion and delay surrounding third-country CCP authorisation under CRD IV. Non-EU clearers have temporary QCCP status until 15th June, enabling their clients to benefit from a low 2% risk-weight. After that date, in the absence of qualification, risk weights will soar to 20% or more- far beyond the margin that could make many trades pointless. Confusion has arisen from article 25(3) EMIR, stipulating a 180 day deadline for ESMA to decide upon third-country CCPs’ applications for recognition. Counting from the 15th September 2013 application cut-off, the reasonable inference was that all such decisions would be made by 15th March 2015. However, it transpires that ESMA will not start the 180-day countdown until the CCPs respective country’s supervisory regime has first been cleared for equivalence by the EC- there are only such nine countries to date[1]. The fog is exacerbated by the fact that many countries’ rules are only fully laid-out in the rule books of their own CCPs, a classic catch-22 scenario. CCPs in Mexico, Malaysia and South Africa are among those caught in this more expensive, modern equivalent of Kafka’s Castle. The EC has the power to extend temporary QCCP status by six months “in exceptional circumstances where it is necessary to avoid disruption to international financial markets”. In the absence of such an extension and given the huge costs consequent upon lack of QCCP recognition- disruption is a given. However, an almost pathological lack of communication and a lack of clarity amounting to being blindfolded would seem to be more business as usual than exceptional circumstances. While it is likely an extension will be granted, the EC has given no guidance on this and it is questionable whether 6 months will suffice to complete the process.


[1] Australia, Canada, Dubai, Hong Kong, India, Japan, Singapore, Switzerland and the U.S.

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