Brussels, 21/08/2015 (Agence Europe) - In early August 2015, the European Commission adopted new rules to make settlement compulsory in central clearing houses (CCP) for certain over-the-counter interest rate derivatives contracts.
Implementing EU Regulation 648/2012 on market infrastructure in the EU, the new delegated regulation applies to specific interest rate swaps in euros, pound sterling, Japanese yen and US dollars relating to the benchmark for the derivatives contract, the residual duration of the contract and/or type of swap deal (fixed versus variable basic interest rates, term contracts for indexed swap rates based on the one-day rate).
Once approved by the European Parliament and the Council of the EU, central clearing requirements will be phased in over three years in order to give small market players more time to adapt. Over time, the new rules will make the financial system more stable, as pledged by the G20 following the 2008 financial crisis. Financial Services Commissioner Jonathan Hill said this was an important step in implementation of the G20's commitments.
The new measures are based on the first proposal of its type issued by the European Securities Markets Authority (ESMA). In a press release, the Commission said ESMA will shortly be proposing requirements for other categories of over-the-counter derivative deals.
Interest rate derivatives make up the biggest segment of the over-the-counter derivatives market, accounting in December 2014 for around 80% of all derivatives in the world. In April 2013, the daily volume of trading in this type of contract in G4 currencies (the EU, United Kingom, United States and Japan) was estimated at being worth more than €1,500 billion.
As compulsory clearing through a centralised clearing house makes them more important in terms of stability of the economy, the European Commission will unveil draft legislation at the end of the year on CCP resolution. (Mathieu Bion)