EFAMA panel: Mandatory active accounts for EU clearing could increase systematic risk
30 June 2023 Belgium
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There is some industry apprehension that mandatory active accounts for EU clearing could increase systemic risks, not lower them.
The concern came from panellists who took part in an EFAMA webinar on 14 June, entitled “Central clearing: what it is and the impact of active accounts.”
In the webinar panellists expressed that EU CCP volume would benefit from organic
growth driven by expedited regulatory growth processes and additional requirements on margin model transparency. However, to avoid building a monopoly in Europe, as a result of active accounts, panellists said that EU CCPs should strive to attract global clearing flows to ensure balanced and sustainable growth.
EU CCPs aim to attract global clearing flows and ensure balanced and sustainable growth, however mandated clearing could lead to a widening basis against other CCPs, exacerbating liquidity pressure in times of market stress, the panellists claimed.
Without the absence of a free choice to clear where the best prices and netting benefits were available, asset managers also expect to struggle in delivering best execution to clients, they added. This would lead to discrimination or unfair treatment of clients.
In addition, the lack of a proper impact assessment on the active accounts proposal and the accompanying splitting of liquidity pools, begs the question: ”how will this result in a reduction of systemic risk?”
Pierre-Antoine Masset, market structure lead at Nordea Asset Management, says: “Active accounts fundamentally amount to an import tax applied to clearing clients. The new liquidity on an EU CCP would come at a cost as clearing brokers will have to first find and margin for the opposite side of the trade on a non-EU CCP before clearing on the EU CCP.”
The concern came from panellists who took part in an EFAMA webinar on 14 June, entitled “Central clearing: what it is and the impact of active accounts.”
In the webinar panellists expressed that EU CCP volume would benefit from organic
growth driven by expedited regulatory growth processes and additional requirements on margin model transparency. However, to avoid building a monopoly in Europe, as a result of active accounts, panellists said that EU CCPs should strive to attract global clearing flows to ensure balanced and sustainable growth.
EU CCPs aim to attract global clearing flows and ensure balanced and sustainable growth, however mandated clearing could lead to a widening basis against other CCPs, exacerbating liquidity pressure in times of market stress, the panellists claimed.
Without the absence of a free choice to clear where the best prices and netting benefits were available, asset managers also expect to struggle in delivering best execution to clients, they added. This would lead to discrimination or unfair treatment of clients.
In addition, the lack of a proper impact assessment on the active accounts proposal and the accompanying splitting of liquidity pools, begs the question: ”how will this result in a reduction of systemic risk?”
Pierre-Antoine Masset, market structure lead at Nordea Asset Management, says: “Active accounts fundamentally amount to an import tax applied to clearing clients. The new liquidity on an EU CCP would come at a cost as clearing brokers will have to first find and margin for the opposite side of the trade on a non-EU CCP before clearing on the EU CCP.”
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