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The Impact of EMIR in Asia

An interesting article from Risk Magazine regarding the impact of EMIR Article 25, which requires a central counterparty established in a non-EU country (a “Third Country CCP”) to be recognised by the European Securities and Markets Authority (“ESMA”) if it wishes to provide clearing services to clearing members established in the EU.

The six-month grace period granted by the European Commission (“EC”) to Third Country CCPs which allows them to provide services to EU clearing members without applying for EMSA recognition is due to expire on 15 September 2013.  The article describes the way that, in practice, the process for a Third Country CCP to gain approval is not straightforward, requiring the EC to approve the regulatory and legal framework of the relevant third country as being equivalent to that of EMIR as a preliminary to ESMA approval of the Third Country CCP.  The problem is compounded in relation to certain jurisdictions – China, India and South Korea among them – where there exist strict controls over the cross-border disclosure of information by state-owned enterprises.  Moreover, currency controls and mandatory clearing requirements in such jurisdictions can remove the possibility of off-shore clearing by EU clearing members.  Whilst some exemptions do exist – for example in relation to EU clearing members which trade via a subsidiary (and not a branch) established in the third country – the article highlights that these can be less than palatable for logistical and capital reasons, leaving some firms facing the worst-case scenario of having to exit non-approved markets within the next few months.

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