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02 November 2015

ECB'S Cœuré: The international regulatory agenda on CCP links

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Cœuré says that the ongoing EMIR review, as well as the upcoming report on the systemic risk and cost implications of interoperability arrangements, will provide the ECB with an opportunity to discuss the risks involved and think about potential enhancements to the current regulatory framework.

Speech by Benoît Cœuré, Member of the Executive Board of the ECB, at the ESRB workshop on CCP interoperability arrangements.

[...]CCP interoperability has improved the efficiency of the EU post-trading landscape, and is one aspect of broader initiatives to reduce fragmentation in financial markets  


First of all, I would like to say that it is rather topical to be discussing CCP interoperability, particularly as just a few weeks ago the Commission released its Action Plan on Building a Capital Markets Union. One of the priorities put forward by the Commission for this ambitious project is to step up efforts in removing barriers to the cross-border clearing and settlement of securities. CCP interoperability can play a key role in meeting this objective, as the Giovannini Group highlighted in 2001 already. [...]

Indeed, supporting CCP interoperability seems particularly relevant in the context of the EU financial system, where securities and funds need to flow across borders, but where clearing and settlement infrastructures have traditionally been largely domestic in nature. [...] 

However, we should also keep in mind that covering the exposures resulting from interoperability arrangements may create a need for extra collateral. Overall, interoperability has the potential to help reduce the fragmentation in financial markets, spur competition and innovation, and decrease the cost of central clearing.


To sum up, there is a broad consensus among market participants that today’s interoperability arrangements covering cash equities, fixed income products and certain exchange-traded derivatives have improved the liquidity of these markets. I think it is therefore safe to say that the implementation of CCP interoperability has benefited clearing members and their clients alike. [...]

As I mentioned earlier, CCP interoperability should be understood within the context of broader market-led efforts to improve market infrastructure integration. In the area of securities settlement, integration has increased substantially in the last 15 years as a result of the establishment of links between securities settlement systems. Furthermore, the launch of TARGET2-Securities earlier this year has given Europe a new single securities platform. [...]

The regulatory framework established at EU and international level ensures that interoperability links are managed in a safe and prudent manner. However, CCPs face a number of challenges in applying these risk management standards

Building on the foundations established by the CPMI-IOSCO Principles for Financial Market Infrastructures, EMIR sets out strict binding rules for managing the potential risks stemming from interoperability arrangements.

These rules relate to the provision of margins between interoperating CCPs, the necessary harmonisation of CCP risk management frameworks and the use of inter-CCP resources in default situations. Crucially, the establishment of interoperability arrangements is subject to the approval of colleges that are set up under EMIR in order to supervise CCPs. Cooperative supervision arrangements are particularly necessary with regard to interoperability arrangements, which require a high level of scrutiny from a number of relevant authorities, including the supervisors of the two interoperating CCPs and the central banks of issue of the most relevant currencies cleared through the link. [...]

Looking ahead, I believe that market confidence in the safety of interoperability arrangements will be further strengthened with the entry into force of the CPMI-IOSCO Public quantitative disclosure standards for central counterparties. [...]

In sum, I am confident that the current EU regulatory framework and the rules established at international level ensure a high overall level of safety for CCP interoperability arrangements. However, looking ahead, several questions still remain open to discussion. [...]

An initial question to be examined is whether regulators should set any limits on the potential scope of interoperability. [...]

A second question which warrants attention is whether interoperability is likely to shake up, or even destabilise, the EU CCP landscape. [...]

Third, I believe we need to ask ourselves why EU CCPs have not been more active in developing interoperability arrangements. [...]

One final question which comes to mind is whether systemic risk is adequately addressed in the current regulatory framework regarding interoperability. 

Full speech

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