PostTrade 360掳: CCPs seek balance between regulation and efficiency
10 September 2024 Sweden
Image: Daniel_Tison
鈥淢arkets are global, problems are local. Central clearing will in general will continue to increase in its relevance, with a particular link between underlying currency and the respective jurisdiction,鈥� said Matthias Graulich, executive board member, Eurex Clearing, at PostTrade 360掳 Nordic 2024 in Stockholm.
The 鈥楥CP market game at strategic level鈥� panel discussion focused on the regulatory challenges facing central clearing in Europe, especially the European Market Infrastructure Regulation (EMIR).
Graulich stated that EMIR aims to make the European market infrastructures globally more competitive and provide more autonomy to European regulators in case of a crisis.
鈥淵ou wouldn鈥檛 want a Euro-denominated systematically relevant product to rely on the support from a third country central bank and hope for their goodwill to take swift action in your best interest,鈥� he said. 鈥淎nd this is where EMIR kicks in and tries to set incentives or push people to move some of the exposure from third country infrastructures into the EU, to have tighter control and have the ability to take action in these crisis situations.鈥�
In response, Patrik Lohr, CEO at Nasdaq Clearing, commented: 鈥淚n the end, it鈥檚 all going to be about the implementation because that鈥檚 where we see what the effects really are. But there are good intentions, and I think [EMIR] can improve EU competition.鈥�
Jos茅 Manuel Ortiz-Repiso, head of clearing and repo operations at SIX, agreed that effective implementation of the new regulation will be 鈥渃rucial鈥�.
鈥淲e have to find the right balance between pragmatism and risk,鈥� he added. 鈥淲e have to be pragmatic because we have to consider the profitability of our clients, but also our profitability, because we will need to become a reliable source of trust for them, managing the risks and offering them all the possible efficiencies in terms of products, collateral, and treasury management.鈥�
Vikesh Patel, president of Cboe Clear Europe, hopes that the implementation of EMIR will facilitate the approval process.
鈥淪triking the right balance between regulatory oversight and fostering product innovation is challenging, and I believe we haven鈥檛 quite achieved it yet,鈥� he said. 鈥淚f I bring a new product to market, it should take the appropriate amount of time to do due diligence of the product for regulators to be comfortable, but if I already clear the product, and I鈥檓 adding another currency or something else, that still takes an awful lot of time to get approval.
鈥淎nd there was a lot of ambition at the start of the year that we would be able to address that and support innovation, and we still haven鈥檛.鈥�
Isabelle Girolami, CEO of LCH, highlighted the work of the European Securities and Markets Authority (ESMA) as a European supervisor.
鈥淭he more powers ESMA has, the better,鈥� she said. 鈥淎nd the more experience they have in regulating European CCPs, the better they are in regulating non-European CCPs.鈥�
On that note, Patel came up with a driving analogy where CCPs hold the steering wheel and ESMA has access to the brakes and accelerator.
He said: 鈥淲hen I was learning to drive, I was holding the wheel, but the other person who was teaching me to drive probably had more power than I did at that point when they needed to.鈥�
During the discussion, Ortiz-Repiso also stressed the importance of collaboration across the sector to prepare for the adoption of T+1 in Europe.
鈥淲e will make a tremendous mistake if we cannot act as an industry because the politicians and regulators need our proactiveness,鈥� he said. 鈥淲e will have to be a little bit more innovative and provide the efficient tools to do so, and not only giving it to the hands of regulators and politicians, to ensure great success, increasing the competitiveness of Europe in general.鈥�
Moving on from regulatory challenges, the panellists discussed technological innovations.
Graulich mentioned the opportunity for existing cross-margin capabilities with a focus on Euro denominated product across futures and swaps, as well as the planned expansion to include repos into that mix. He referred to 鈥渇uturisation鈥� as a 鈥漦ey priority鈥� for Eurex.
He said: 鈥淐redit futures see more and more adoption in the market, and people are seeing this product as an easy way to take an exposure on credit, to manage credit-related risks in a set of products, euro-denominated, dollar-denominated.鈥�
Girolami emphasised the need for optimisation, which is prevalent across the industry.
鈥淲e all want to provide solutions to help optimise,鈥� she said. 鈥淚t also relates to the broader theme and importance of continuing to provide margin optimisation solutions.鈥�
In their conclusion, the panellists agreed that the clearing business has a 鈥渧ery strong future鈥� in Europe.
The 鈥楥CP market game at strategic level鈥� panel discussion focused on the regulatory challenges facing central clearing in Europe, especially the European Market Infrastructure Regulation (EMIR).
Graulich stated that EMIR aims to make the European market infrastructures globally more competitive and provide more autonomy to European regulators in case of a crisis.
鈥淵ou wouldn鈥檛 want a Euro-denominated systematically relevant product to rely on the support from a third country central bank and hope for their goodwill to take swift action in your best interest,鈥� he said. 鈥淎nd this is where EMIR kicks in and tries to set incentives or push people to move some of the exposure from third country infrastructures into the EU, to have tighter control and have the ability to take action in these crisis situations.鈥�
In response, Patrik Lohr, CEO at Nasdaq Clearing, commented: 鈥淚n the end, it鈥檚 all going to be about the implementation because that鈥檚 where we see what the effects really are. But there are good intentions, and I think [EMIR] can improve EU competition.鈥�
Jos茅 Manuel Ortiz-Repiso, head of clearing and repo operations at SIX, agreed that effective implementation of the new regulation will be 鈥渃rucial鈥�.
鈥淲e have to find the right balance between pragmatism and risk,鈥� he added. 鈥淲e have to be pragmatic because we have to consider the profitability of our clients, but also our profitability, because we will need to become a reliable source of trust for them, managing the risks and offering them all the possible efficiencies in terms of products, collateral, and treasury management.鈥�
Vikesh Patel, president of Cboe Clear Europe, hopes that the implementation of EMIR will facilitate the approval process.
鈥淪triking the right balance between regulatory oversight and fostering product innovation is challenging, and I believe we haven鈥檛 quite achieved it yet,鈥� he said. 鈥淚f I bring a new product to market, it should take the appropriate amount of time to do due diligence of the product for regulators to be comfortable, but if I already clear the product, and I鈥檓 adding another currency or something else, that still takes an awful lot of time to get approval.
鈥淎nd there was a lot of ambition at the start of the year that we would be able to address that and support innovation, and we still haven鈥檛.鈥�
Isabelle Girolami, CEO of LCH, highlighted the work of the European Securities and Markets Authority (ESMA) as a European supervisor.
鈥淭he more powers ESMA has, the better,鈥� she said. 鈥淎nd the more experience they have in regulating European CCPs, the better they are in regulating non-European CCPs.鈥�
On that note, Patel came up with a driving analogy where CCPs hold the steering wheel and ESMA has access to the brakes and accelerator.
He said: 鈥淲hen I was learning to drive, I was holding the wheel, but the other person who was teaching me to drive probably had more power than I did at that point when they needed to.鈥�
During the discussion, Ortiz-Repiso also stressed the importance of collaboration across the sector to prepare for the adoption of T+1 in Europe.
鈥淲e will make a tremendous mistake if we cannot act as an industry because the politicians and regulators need our proactiveness,鈥� he said. 鈥淲e will have to be a little bit more innovative and provide the efficient tools to do so, and not only giving it to the hands of regulators and politicians, to ensure great success, increasing the competitiveness of Europe in general.鈥�
Moving on from regulatory challenges, the panellists discussed technological innovations.
Graulich mentioned the opportunity for existing cross-margin capabilities with a focus on Euro denominated product across futures and swaps, as well as the planned expansion to include repos into that mix. He referred to 鈥渇uturisation鈥� as a 鈥漦ey priority鈥� for Eurex.
He said: 鈥淐redit futures see more and more adoption in the market, and people are seeing this product as an easy way to take an exposure on credit, to manage credit-related risks in a set of products, euro-denominated, dollar-denominated.鈥�
Girolami emphasised the need for optimisation, which is prevalent across the industry.
鈥淲e all want to provide solutions to help optimise,鈥� she said. 鈥淚t also relates to the broader theme and importance of continuing to provide margin optimisation solutions.鈥�
In their conclusion, the panellists agreed that the clearing business has a 鈥渧ery strong future鈥� in Europe.
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