CME Clearing Europe and Euroclear target OTC derivatives business
The CME Group is keen to expand its London business
Market participants trying to clear OTC derivatives under new European trading rules will soon be able to use a service from CSD Euroclear and clearinghouse CME Clearing Europe that promises to make the job easier.
Regulations such as EMIR in Europe, Dodd-Frank in the US mandate the central clearing and reporting of the bulk of OTC derivatives, while Basel III makes the remaining OTC products much more expensive to use by increasing the collateral requirements. The aim of the legislation is to reduce systemic risk in OTC derivatives markets, which were blamed by the G20 nations in 2009 as a contributor to the recent financial crisis.
The deal between Euroclear Bank and CME Clearing Europe will see Euroclear sourcing and managing securities collateral from its Collateral Highway service for clients, so that they can meet initial margin requirements at CME Clearing Europe. The Collateral Highway is a service in which Euroclear sources collateral from other firms such as BNP Paribas, which signed up as a user earlier this year, and moves it to wherever it is needed.
“Central counterparty clearing institutions like CME Clearing Europe are playing a vital role in mitigating credit risk, expanding their role further with new regulatory requirements for OTC derivatives transactions,” said Saheed Awan, global head of collateral management services at Euroclear Bank. “We have made our Collateral Highway available to key infrastructure institutions so that their clearing members are able to deliver collateral for CCP margin calls with ease and efficiency through our tri-party collateral management service.”
CME Clearing Europe was established in May 2011; it is the European clearing business of US derivatives giant the CME Group.
In August 2012, the CME announced plans to bolster its European business with the launch of a London-based derivatives exchange, to be called CME Europe, with a planned start-date of mid-2013. The new exchange is expected to focus on foreign exchange futures, an asset class that the CME says is currently under-served in Europe.
EMIR was originally due to take effect from January 2013, but is now scheduled tentatively for summer 2014, according to the latest estimates from Verena Ross, executive director at the European Securities and Markets Authority.
