Asian CCPs left to apply ‘in the dark’ for Esma recognition

Asian central counterparties (CCPs) looking to meet the September 15 deadline in applying for European Securities and Markets Authority (Esma) recognition will, for the most part, have to apply without knowing if their jurisdiction is deemed equivalent to that set out in the European Market Infrastructure Regulation (Emir).

On Friday, the European Commission (EC) extended the deadline for Esma to report back on third-country CCP regulatory regime equivalence to Emir for the US and Japan from June 15 to September 1, and for jurisdictions including Hong Kong, Singapore and India from July 15 to October 1. South Korea was included for the first time, added to the latter deadline.

This was the second extension after the EC rolled over the initial March 15 deadline for the US and Japan at the end of February. However, the EC is unable to change the September 15 deadline for third-country CCPs to apply for Esma recognition, without which CCPs cannot continue offering services to European Union (EU)-established institutions.

This poses a problem for CCPs in places such as Singapore and Hong Kong in particular. Singapore Exchange’s (SGX) AsiaClear, for instance, has been running since 2006, while it is expected that the Hong Kong Exchanges and Clearing (HKEx) will launch its clearing platform before the end of June, which means both would have to apply before the EU has established whether their regulatory regimes are equivalent to its own.

“When we first saw these timelines at the end of last year, we thought Esma’s advice or the view of the EC would help people make their application. We anticipated this would come before the application, but now it’s clear the application will come before the analysis,” says Paget Dare Bryan, Hong Kong-based partner at Clifford Chance.

“We had in some ways expected the application to be driven off the analysis, but now CCPs are going to be slightly in the dark when doing their applications.”

Indeed, David Griffith, Singapore-based chief operating officer for forex, rates and credit at Standard Chartered, says pressure on CCPs is a worry. “The revision to the schedule is a positive indicator that regulators are trying to work together to find a mutually agreeable solution. However, the pressure for Asian CCPs to submit their applications still remains, and this is our main area of concern at the moment,” he says.

There remains a degree of wriggle room for CCPs. First, Keith Noyes, Hong Kong-based regional director, Asia-Pacific, for the International Swaps and Derivatives Association, points out that CCPs that finish the applications can continue to provide services to EU firms.

“Without doubt, CCPs will have to apply without knowing if they are in a jurisdiction that will be deemed equivalent to Emir, but the Esma attitude right now is ‘get your application in’, which allows them to grant nine months transitional relief to sort things out,” says Noyes.

Second, the EC re-affirmed that Esma will have 180 days after the receipt of a complete application by a third-country CCP to make a decision on its application. Clifford Chance’s Dare Bryan points out that under Emir, Esma has 30 working days to decide if an application is complete, which potentially gives firms until the end of October to receive feedback from Esma and finalise their applications.

“Assuming CCPs make their application close to the deadline, there will be a period of time between September 15 and the end of October when Esma will review the papers and decide if the application is complete. If it is not complete, then Esma will set a deadline by which applicants are to supply additional information. Once completed, Esma has 180 working days to decide on the application,” he says.

“CCPs have to get going now. This extension doesn’t provide extra time for the applications, and in fact we’ve got slightly less information and time to get just as ready. What you see is that now timing is as tight as it could be,” he adds.

SGX and HKEx were unable to comment by press time.


This article was first published on Risk

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