Europe has come under attack from Asian market regulators, who are warning that the one-size-fits-all tests for clearing houses will hamper business and liquidity in their region.
The criticism shows divisions over the implementation of landmark G20 reforms of the financial system that have created friction between the US and Europe are now spreading to Asia. In a letter to Michel Barnier, the European Commissioner for internal markets, 23 Asian regulators warn of “severe problems” if Europe attempts to impose “conditions and standards that are not relevant, appropriate of even feasible” for Asian clearers.
A clearing house, or central counterparty (CCP), stands between two parties to a trade, stepping in to ensure the deal is completed if one side defaults. “EU established financial institutions and subsidiaries would not be able or would find it prohibitively expensive to use the services provided by these non-EU CCPs", said the letter, signed by Ashley Alder, chief executive of the Securities and Futures Commission, Hong Kong’s market regulator. “This will further lead to market fragmentation, contraction of market liquidity and will directly impact on EU established financial institutions and subsidiaries carrying on business in the Asia-Pacific region.”
Under new European rules for policing OTC derivatives – known as the European Market Infrastructure Regulation (EMIR) – clearing houses in Asia have had to register in Europe to qualify to offer clearing services to EU financial institutions. While Asia accounts for only about 8 per cent of global OTC derivatives volume, it is expected to grow in coming years as its capital markets mature and more companies opt to use OTC derivatives, such as interest rate swaps, for hedging.
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