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QCCP deadline deferred?

Risk magazine reports that the EC may extend the date by which ESMA must make a final decision on the equivalence of foreign jurisdictions for clearing under EMIR. A volte-face made all the more surprising by previous intransigence. Lacking such authorisation, CCPs will lose their interim “Qualifying” CCP status; a qualification that confers a capital charge reduction by a factor of ten. Failure to achieve full approval by the 15 December 2014 cut-off date will make the business of clearing in Europe marginal at best. While a number of countries[1] were granted equivalent status in June 2014, the US was notable by its absence. At the time, Kim Taylor of the CME Group likened the situation to being held hostage by the European authorities, comparing the cut-off date to “a big doomsday clock”. The image is not just hyperbole, the increasingly imminent possibility that the world’s largest derivatives trading jurisdiction may be effectively excluded from competing in Europe is a non-trivial concern.

Martin Merlin, EC director for financial markets, spoke at the FIA conference in Geneva on Monday,

“Right now, we are prioritising assessment of equivalence for foreign CCPs under article 25 of Emir. We hope to adopt a first set of decisions within the coming weeks. Of course, this has involved a real investment of resources on our part, and it has taken rather longer than we anticipated. As a result of that, the commission is considering a further six-month extension of the deadline… in respect of the foreign CCPs who have not yet been able to obtain recognition by Esma”.

The legal authority for the mooted six-month extension is unclear- the December deadline is in the CRR, and the European legislative system entirely lacks the ad-hoc flexibility accorded to US regulators such as the CFTC. The EBA has published Q&A guidance on its website, clarifying that Article 311(3) CRR allows a three-month period for non-qualifying CCP members to make a graceful exit- but three months is well short of six. Even in the event of a half-year extension, ESMA’s task will not be easy, Martin went on to argue for more detailed international standards on margin regulations, arguing that differential implementation in this critical area may lead to “a race to the bottom on price between the internationally active CCPs”.

[1] Australia, Hong Kong, India, Japan and Singapore

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