Little support for European Commission’s clearing plans, Acuiti report says
12 May 2023 UK
Image: Maria Petrish
According to Acuiti’s Q2 Clearing Management Insight Report, 92 per cent of senior derivatives clearing executives do not support changes to EU clearing rules that the European Commission has put forward.
The Commission has proposed a requirement for firms clearing certain Euro-denominated products to clear a portion in the EU and maintain an ‘active account’ at an EU-based clearing house.
Many of those surveyed predicted that firms would be forced into uncompetitive trades to meet quantitative threshold requirements. 25 per cent expect that competition for clearing EU products would decrease.
Costs were anticipated to spike if the changes go through, with 90 per cent of respondents expecting rising costs for clients and most foreseeing rising costs for their house business.
The ‘active account’ was defined differently by those polled, with some taking it to mean ‘an account that trades at least once every certain period in a certain size’, and others framing it as ‘a continuity facility without a minimum threshold, which can be activated promptly should porting be required’.
Looking forward, the report identified bullish attitudes from senior clearing executives for the year ahead. Approximately 50 per cent expect 2023 to be better than 2022, and only 21 per cent anticipate lower revenues.
Particular growth was predicted in low-touch execution and over-the-counter clearing services. The performance of listed clearing and US options clearing were expected to dip.
Acuiti surveys its Clearing Expert Network each quarter for the Clearing Management Insight Report. The network consists of more than 100 senior executives from across the global market.
Commenting on the findings, Ross Lancaster, head of research at Acuiti, says: “The EU’s goals of increasing the competitiveness of clearing houses under its jurisdiction is understandable, but the findings of this survey suggest that a mandate to clear euro-denominated products risks increasing costs for end users.”
Jerome Kemp, president of Baton Systems, adds: “Removing euro-denominated derivatives from large netting sets in London just adds greater complexity to what is already an immensely complicated and fractured space. The vivisection of clearing between the UK and the EU would result in smaller netting sets across separate clearing houses, ultimately leading to higher operational costs, artificial and unnecessary liquidity bifurcation, and in most likelihood an even more stifling capital burden.”
The Commission has proposed a requirement for firms clearing certain Euro-denominated products to clear a portion in the EU and maintain an ‘active account’ at an EU-based clearing house.
Many of those surveyed predicted that firms would be forced into uncompetitive trades to meet quantitative threshold requirements. 25 per cent expect that competition for clearing EU products would decrease.
Costs were anticipated to spike if the changes go through, with 90 per cent of respondents expecting rising costs for clients and most foreseeing rising costs for their house business.
The ‘active account’ was defined differently by those polled, with some taking it to mean ‘an account that trades at least once every certain period in a certain size’, and others framing it as ‘a continuity facility without a minimum threshold, which can be activated promptly should porting be required’.
Looking forward, the report identified bullish attitudes from senior clearing executives for the year ahead. Approximately 50 per cent expect 2023 to be better than 2022, and only 21 per cent anticipate lower revenues.
Particular growth was predicted in low-touch execution and over-the-counter clearing services. The performance of listed clearing and US options clearing were expected to dip.
Acuiti surveys its Clearing Expert Network each quarter for the Clearing Management Insight Report. The network consists of more than 100 senior executives from across the global market.
Commenting on the findings, Ross Lancaster, head of research at Acuiti, says: “The EU’s goals of increasing the competitiveness of clearing houses under its jurisdiction is understandable, but the findings of this survey suggest that a mandate to clear euro-denominated products risks increasing costs for end users.”
Jerome Kemp, president of Baton Systems, adds: “Removing euro-denominated derivatives from large netting sets in London just adds greater complexity to what is already an immensely complicated and fractured space. The vivisection of clearing between the UK and the EU would result in smaller netting sets across separate clearing houses, ultimately leading to higher operational costs, artificial and unnecessary liquidity bifurcation, and in most likelihood an even more stifling capital burden.”
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