EU grants US CCP equivalency


17 March 2016

EU grants US CCP equivalency

The European Commission has accepted US central counterparty (CCP) regulations as equivalent to its own, allowing US CCPs to apply to the European Securities and Markets Authority for derivatives clearing status.
This follows the announcement of a common approach to CCP equivalence between US and European regulators in February this year. The US Commodity Futures Trading Commission is expected to reciprocate in the coming months.
The announcement comes just in time to avoid market disruption in a few months, when the clearing obligation comes into effect in Europe for interest rates derivatives in EUR, GBP, JPY and USD, and at least one of the contracting parties is a Category 1 entity domiciled in the EU.

EU clearing obligation: timing
The clearing obligation comes into effect on 21 June 2016 for Financial Counterparties and Non-financial Conterparties + that fall into Category 1 (i.e., those entities that, as at 21 December 2015, were clearing members in an authorised CCP in respect of at least one of the asset classes subject to the clearing obligation).
Category 2 entities (i.e., those Financial Counterparties not comprised in Category 1, that belong to a group whose aggregate month-end average outstanding gross notional amount of non-centrally cleared derivatives for January, February and March 2016 is above EUR 8 billion) must start clearing as from 21 December 2016.
The clearing obligation comes into effect on 21 June 2017 for Category 3 (i.e., Financial counterparties not under Categories 1 or 2), whereas Category 4 entities (i.e., those Non-financial Counterparties + not under Category 1) must comply by 21 December 2018.

 

Frontloading
There will also be an obligation, known as “frontloading”, whereby Category 1 and 2 entities must novate to a CCP certain derivative transactions entered into before the coming into effect of the clearing obligation.

For more information or enquiries as to how these regulatory obligations affect you and how to navigate the regulatory landscape, feel free to contact us.