Setting EU CCP policy – much more than meets the eye
More than EUR 3.2 trillion notional outstanding of interest rate swaps are cleared every day in the City of London. Around 94% of all euro-denominated interest rate swaps that are traded globally are cleared in UK-based central counterparty clearing houses (CCPs). Brexit has naturally raised questions around whether London’s central role can continue.
“Policymakers should treat the central role of CCPs in capital markets carefully. Our report clearly show that any actions to move business to the EU should consider the broader structure in which such systems operate and should be part of a strategy to create a more integrated EU capital market.”
Karel Lannoo, General Manager of ECMI and CEO of CEPS
A new ECMI study calls for a long-term vision for the future of the European clearing market, by taking financial stability, efficiency, and market development objectives into account.
- In the short-term, the best way forward to address EU concerns about the exposure of EU firms to UK (CCPs) is to implement appropriate supervisory and regulatory co-operation.
- A policy to further develop central clearing in the EU should be part of a clear long-term strategy in the context of the Capital Markets Union (CMU), be market-driven and, again, be given the appropriate time to mature.
- The alternative, to abruptly restrict EU firms’ access to UK-based CCPs, would result in clear collateral damage for EU banks and end users, put EU banks at a clear competitive disadvantage vis-à-vis it’s international counterparts and unnecessarily harm the EU economy.
“Allowing market participants to determine the best market structure based on their trading needs and objectives will allow for a more organic, market-led and customer-driven development of the EU’s derivatives market infrastructure.”
Apostolos Thomadakis, Researcher at ECMI and CEPS