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On October 20 2009, the commission adopted the Communication "Ensuring efficient, safe and sound derivatives markets - Future policy actions". These policy actions foresee legislation mandating central counterparty (CCP) clearing for a wide scope of eligible derivatives contracts, mandating reporting of OTC derivatives to trade repositories (TRs) and establishing the requirements that CCPs and TRs need to comply with to ensure their safety, soundness and efficiency.
The Commission is now in the process of finalizing its draft legislative proposals. Before doing so, it needs to finalize its views on four specific issues described in the EC discussion paper: "Public consultation on derivatives and market infrastructures":- Clearing and risk mitigation of OTC derivatives
- Requirements for Central Counterparties
- Interoperability
- Reporting obligation and requirements for Trade Repositories
As supplier of trading and clearing technology, Cinnober has submitted a response to the consultation, stressing the importance of not being colored by constraints presented by current technology in the derivatives CCPs when setting out directions for future efficient, safe and sound markets.
Cinnober's standpoint is that the proposed legislation should, where possible, motivate the clearing industry to adopt flexible, real-time systems. By doing so it would enhance the industry's ability to handle more types of contract and would enable it to manage the risks of high frequency trading much more effectively.
"We see the outcome of this work as very important for the future effectiveness and soundness of the European derivatives markets. For too long there has been too little investment in post-trade infrastructure" Jan Arpi, CEO of Cinnober says. "It is crucial that clearing houses equip themselves with fast, flexible information technology which can be adapted at the rate that the financial industry innovates. It's therefore important to not limit legislation to what's possible to do with the technical solutions running in clearing houses today. Innovation and technical development in this industry will be crucial to make the market more secure and efficient."
During the development of the company's real-time clearing solution, the company has consulted widely with the industry and regulators about the facilities required in a modern CCP system in the post-financial crisis era.
"Hopefully a lot will be achieved by leaving it up to competition between clearing houses. Those with an innovative approach and good technology will be commercially motivated to clear as many types of contracts as possible if authorities are willing to mandate clearing", says Nils-Robert Persson, Executive Chairman of Cinnober and previously deputy CEO for the OM Group (now part of Nasdaq OMX) with responsibility for all the exchanges and clearing houses in the group.
Cinnober's response to the public consultation can be downloaded at www.cinnober.com and will be published on the Commission website together with all received responses.
