Eurex urges managers not to panic about regulatory arbitrage with swaps clearing
The regulatory arbitrage between the US and EU on mandatory clearing is not as acute as widely assumed and buy-side firms should not panic needlessly, advised Eurex, the Frankfurt-based clearing house.
“The differences between US and EU rules on clearing are very small but there has been substantial media and industry hype about the changes. Global regulators have been working closely together to ensure the rules are harmonised or at least very similar,” said Stuart Heath, head of the UK representative office in London for Eurex.
Several managers have complained they are struggling to prepare for different clearing rules in multiple jurisdictions. Nevertheless, Heath did concede the timing of the rules was likely to be an issue although added “this was something regulators were working on.” Speaking at IDX in June 2012, David Lawton, acting director of markets at the FSA, acknowledged the regulatory timetable was a challenge for buy-side firms but urged them to prepare nevertheless.
The CFTC has just reached agreement on the definition of a swap indicating mandatory clearing will happen fairly shortly. However, EMIR is unlikely to be implemented by January 2013 but this should not be used an excuse for complacency, a point reinforced by Heath.
“There is going to be a struggle for managers to acquire a clearing broker. There are only 12 to 15 clearing brokers out there but there will be a surge in managers trying to find one when the deadline nears. I advise managers trading swaps find a clearing broker as soon as possible because there will be a big shortfall when implementation dates get closer,” said Heath.
In June, ESMA published a 293 page consultation paper on the technical standards for regulating the OTC derivatives market, as well as information on CCPs and trade repositories. However, there appears to be very little information about how much the changes will cost. The public consultation period will finish in August with the final draft due to be endorsed by the European Commission at the end of September.