PostTrade 360°: CCPs seek balance between regulation and efficiency
10 September 2024 Sweden
Image: Daniel_Tison
“Markets 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,” said Matthias Graulich, executive board member, Eurex Clearing, at PostTrade 360° Nordic 2024 in Stockholm.
The ‘CCP market game at strategic level’ 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.
“You wouldn’t 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,” he said. “And 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.”
In response, Patrik Lohr, CEO at Nasdaq Clearing, commented: “In the end, it’s all going to be about the implementation because that’s where we see what the effects really are. But there are good intentions, and I think [EMIR] can improve EU competition.”
José Manuel Ortiz-Repiso, head of clearing and repo operations at SIX, agreed that effective implementation of the new regulation will be “crucial”.
“We have to find the right balance between pragmatism and risk,” he added. “We 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.”
Vikesh Patel, president of Cboe Clear Europe, hopes that the implementation of EMIR will facilitate the approval process.
“Striking the right balance between regulatory oversight and fostering product innovation is challenging, and I believe we haven’t quite achieved it yet,” he said. “If 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’m adding another currency or something else, that still takes an awful lot of time to get approval.
“And 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’t.”
Isabelle Girolami, CEO of LCH, highlighted the work of the European Securities and Markets Authority (ESMA) as a European supervisor.
“The more powers ESMA has, the better,” she said. “And the more experience they have in regulating European CCPs, the better they are in regulating non-European CCPs.”
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: “When 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.”
During the discussion, Ortiz-Repiso also stressed the importance of collaboration across the sector to prepare for the adoption of T+1 in Europe.
“We will make a tremendous mistake if we cannot act as an industry because the politicians and regulators need our proactiveness,” he said. “We 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.”
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 “futurisation” as a ”key priority” for Eurex.
He said: “Credit 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.”
Girolami emphasised the need for optimisation, which is prevalent across the industry.
“We all want to provide solutions to help optimise,” she said. “It also relates to the broader theme and importance of continuing to provide margin optimisation solutions.”
In their conclusion, the panellists agreed that the clearing business has a “very strong future” in Europe.
The ‘CCP market game at strategic level’ 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.
“You wouldn’t 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,” he said. “And 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.”
In response, Patrik Lohr, CEO at Nasdaq Clearing, commented: “In the end, it’s all going to be about the implementation because that’s where we see what the effects really are. But there are good intentions, and I think [EMIR] can improve EU competition.”
José Manuel Ortiz-Repiso, head of clearing and repo operations at SIX, agreed that effective implementation of the new regulation will be “crucial”.
“We have to find the right balance between pragmatism and risk,” he added. “We 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.”
Vikesh Patel, president of Cboe Clear Europe, hopes that the implementation of EMIR will facilitate the approval process.
“Striking the right balance between regulatory oversight and fostering product innovation is challenging, and I believe we haven’t quite achieved it yet,” he said. “If 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’m adding another currency or something else, that still takes an awful lot of time to get approval.
“And 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’t.”
Isabelle Girolami, CEO of LCH, highlighted the work of the European Securities and Markets Authority (ESMA) as a European supervisor.
“The more powers ESMA has, the better,” she said. “And the more experience they have in regulating European CCPs, the better they are in regulating non-European CCPs.”
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: “When 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.”
During the discussion, Ortiz-Repiso also stressed the importance of collaboration across the sector to prepare for the adoption of T+1 in Europe.
“We will make a tremendous mistake if we cannot act as an industry because the politicians and regulators need our proactiveness,” he said. “We 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.”
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 “futurisation” as a ”key priority” for Eurex.
He said: “Credit 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.”
Girolami emphasised the need for optimisation, which is prevalent across the industry.
“We all want to provide solutions to help optimise,” she said. “It also relates to the broader theme and importance of continuing to provide margin optimisation solutions.”
In their conclusion, the panellists agreed that the clearing business has a “very strong future” in Europe.
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