This response from the European Association of CCP Clearing Houses (EACH) represents the views of EACH Member CCPs on the European Commission consultation on post-trade in a Capital Market Union. In summary:
- The EU post-trade market in 5 to 10 years-time: Within 5 to 10 years-time, EACH believes that the EU post-trade markets should be safe, efficient, innovative and internationally competitive. In order to achieve, we suggest ensuring:
- Full implementation of the G20 mandate
- Application of harmonised rules and standards
- Efficient supervision
- Proportionality
- Measures to be taken to improve the cross-border flow of collateral
- Improvement of the legal enforceability of collateral and close-out netting arrangements cross-border
- Trends in EU post-trade services: EACH Members believe that the following trends are shaping today or will shape in the future EU post-trade services:
- Implementation of the G20 mandate on OTC derivatives
- Regulation
- Supervisory convergence
- Access to clearing services
- Technology (e.g. Distribution Ledger Technologies, Artificial Intelligence, digitalisation)
- Algorithmic trading
- Search for more efficiency and economy of scale
- Value shift and search for yield among asset classes
- Systemic risks in post-trade: In order to avoid systemic risk in post-trade, and in clearing in particular, EACH suggests the following measures:
- Risks of legislative or non-legislative initiative reducing the resilience of CCPs – In order to avoid systemic risk, EACH requests that no legislative or non-legislative proposal would fundamentally change the stabilising risk management features of the CCPs, undermining the incentives of the clearing members to properly participate in the auctions and the broader recovery process.
- Exemption of cleared derivatives from bail-in powers: Resolution authorities should take a consistent approach on this matter and exempt cleared derivatives from bail-in powers. In the context of the application of the bank recovery and resolution provisions relative to the potential for cleared derivatives to be subject to bail-in, it should be noted that having CCPs exposed to the risk that different resolution authorities take differing views as to whether cleared derivatives could be bailed in or not, would impact the enforceability of collateral and close-out netting arrangements by a CCP in a clearing member’s default scenario.
- Access to central bank liquidity and central bank deposits: Allowing CCPs to access to central bank liquidity and central bank deposits could address the potential systemic risk concerns that result from the CCP clearing industry being overly dependent on commercial bank providers and the markets to satisfy their liquidity and deposit needs.
- Distributed Ledger Technology (DLT): The application of DLT has potential benefits (e.g. cost reduction and reduction in cost of manual processing) and risk (e.g. Operational risk, timing, legal certainty). Having minimum industry standards independent of the technology applied would represent a way to contribute to a more technology neutral post-trade legislation.
For more information, visit the EACH website www.eachccp.eu.
