The Futures and Options Association welcomes today’s publication of the European Commission’s proposed Regulation on OTC derivatives, central counterparties and trade repositories. Many of the proposals, aimed at facilitating wider use of CCP clearing of OTC contracts and for closer regulation of CCPs, are sensible and largely as expected, following what has been a textbook exercise in consultation.
However, concerns remain, for example, over the complexity and weight of the regulatory authorities that will be overseeing each of the CCPs. Furthermore, CCPs, as the ultimate risk taker, are best placed to determine eligibility, and should have the last “word” on clearing eligibility. In determining eligibility some consideration should be given to a business case for both CCPs and end-users.
The FOA welcomes the exemption of CCP clearing requirements for non-financial firms (e.g manufacturers) using OTC derivatives to mitigate risk arising from their core business activities. However, the Association believes an equivalent exemption should be extended to financial end users, such as fund managers, using the same products for the same purposes.
Anthony Belchambers said: “In general, the text of the regulation is in line with expectations, but it has to be reviewed by the European Parliament where there is a heady and very differentiated mix of political views and priorities. I hope that pragmatism and proportionality, rather than populism, will be the outcome. ”