EQUIVALENCE THROUGH DEFERENCE:
COMMISSION IMPLEMENTS ACTS RECOGNISING
CCP EQUIVALENCE IN CERTAIN NON-EU JURISDICTIONS
DERIVATIVES AND TRADING
Yesterday the European Commission (the Commission) adopted
four provisional implementing acts with the effect that CCPs in
Australia, Hong Kong, Japan and Singapore will soon be able to be
used by market participants to clear standardised OTC derivatives in
compliance with EU legislation.
In other words, these so-called “equivalence” decisions mean that
by submitting a trade for clearing to an approved CCP in Australia,
Hong Kong, Singapore or Japan, a market participant can satisfy the
clearing obligation under EMIR, if such trade is mandatorily clearable
in the EU1.
BACKGROUND
These implementing acts are the first, and long-awaited, result of
interaction between the Commission and the European Securities
and Markets Authorities (ESMA), the Commission having mandated
ESMA in 2012 to provide it with technical input on the equivalence
between certain non-EU countries’ regulatory regimes and aspects
of the EU regulatory regime under EMIR. The implementing acts will
come into force 20 days from their publication in the Official Journal
of the European Union.
The idea behind bringing in these equivalence implementations is
to create a seamless international regulatory framework, to stabilise
the international derivatives market by lessening the chance of
market fragmentation and any possible regulatory arbitrage between
countries. Such a philosophy was agreed by the G20, who in
September 2013 agreed that “jurisdictions and regulators should be
able to defer to each other when it is justified by the quality of their
respective regulatory and enforcement regimes”2.
Commission Vice-President, Michael Barnier echoed this sentiment,
stating that “[the 30 October decisions] show that the EU is willing
to defer to the regulatory frameworks of third countries [i.e. non-EU
countries], if they meet the same objectives as EU rules”. Further,
Mr Barnier added that the Commission “are in close and continued
dialogue with [its] colleagues at both the SEC and CFTC as [it]
develop[s] [its] assessments of their respective regimes and discuss
their approaches to deference”.
HOW IT WILL WORK IN PRACTICE
To benefit from such equivalence provisions, the CCP from a third
country must seek recognition from ESMA3. Assessments of
equivalence are carried out in line with the outcome-based approach,
also lauded by the G20 in September 2013. This means that the
third country regulatory regime must satisfy the same objectives
as that in the EU, to provide a strong CCP framework that reduces
systemic risk and thus engenders financial stability.
The use of this outcome-based approach also means that there is no
requirement for identical rules to be in place, and also means that any
assessment will necessarily require input from the regulators in the
relevant third country. On completion of the assessment, and where
a determination of equivalence is made, an implementing act (in line
with those set out for the four countries at the head of this eBulletin)
will give equivalent status in accordance with Article 25(6) EMIR. At
this point, a market participant will be able to satisfy its mandatory
clearing obligations under EMIR by submitting a trade with an
authorised CCP in that third country.
FUTURE DEVELOPMENTS
As of yet, provisional implementing acts have only been announced
in relation to Hong Kong, Australia, Singapore and Japan. Whilst this
is indeed a big development, it raises the exciting prospect (given
further credence by Mr Barnier’s comments) that other countries,
in particular the US will soon follow. These developments will, we
imagine, be followed closely by most market participants who will be
keen to resolve the potential issue of being subject to both EMIR and
Dodd-Frank clearing regimes. For the time being however, we will
just have to await the results of the “close and continued dialogue”
between the Commission and its US counterparts.
CONTACT DETAILS
If you would like further information or specific advice please contact:
WILL SYKES
DD +44 (0)20 7849 2294
will.sykes@macfarlanes.com
OCTOBER 2014
1
The CCPs whose application for recognition in the EU brought about these acts are: ASX Clear (Futures) Pty Ltd. and ASX Clear Pty Limited in Australia, Hong Kong
Securities Clearing Company Ltd., OTC Clearing Hong Kong Limited, HKFE Clearing Corporation Limited and The SEHK Options Clearing House Limited in Hong Kong,
Japan Commodity Clearing House Co., Japan Securities Clearing Corporation and Tokyo Financial Exchange, Inc. in Japan and Singapore Exchange Derivatives Clearing
Limited and The Central Depository (Pte) Limited in Singapore.
2
Financial Stability Board 18 September 2014 report to G20 Finance Ministers and Central Bank Governors.
http://www.financialstabilityboard.org/publications/r_140918.pdf
3
CCPs from the following non-EU countries have also applied for recognition from ESMA under Article 25(6) EMIR: USA, Canada, Mexico, Brazil, Malaysia, Dubai, India,
Korea, Israel, New Zealand, Switzerland and South Africa.
MACFARLANES LLP
20 CURSITOR STREET LONDON EC4A 1LT
T: +44 (0)20 7831 9222 F: +44 (0)20 7831 9607 DX 138 Chancery Lane www.macfarlanes.com
This note is intended to provide general information about some recent and anticipated developments which may be of interest.
It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.
Macfarlanes LLP is a limited liability partnership registered in England with number OC334406. Its registered office and principal place of business are at 20 Cursitor Street, London EC4A 1LT.
The firm is not authorised under the Financial Services and Markets Act 2000, but is able in certain circumstances to offer a limited range of investment services to clients because it is authorised and regulated by the Solicitors Regulation Authority.
It can provide these investment services if they are an incidental part of the professional services it has been engaged to provide. © Macfarlanes October 2014