Relief Over Counterparty Dilemma With French Move

In a notification released on its website on Friday, French stock market regulator AMF said that the decision was taken after French banks shared their concerns regarding the length of the process to terminate their membership towards these CCPs and transfer their positions.

“Taking into account the significant impact for some French credit institutions of the withdrawal decision by ESMA of the recognition of six Indian CCPs, the AMF, jointly with the ACPR and the Banque de France, invite those credit institutions currently clearing members to provide the AMF and the ACPR with a transitional plan ensuring that the termination of their membership is effective no later than 31 October 2024," said the notification.

The AMF has sought a full and detailed description from French banks of the reasons preventing them from terminating their membership towards the CCPs and transferring their positions by 30 April 2023. Additionally, it has sought a transitional plan detailing the different steps they plan to implement to transfer their positions to a duly authorized clearing member. Such a transitional plan shall also contain regular progress reports to the AMF and the ACPR, it added.

Experts said that the French regulators’ decision to extend the deadline is final and binding on ESMA as well. The new deadline could also coincide with the implementation of the new European Market Infrastructure Regulation (EMIR 3.0), which is expected to have amended the rules around the recognition of CCPs outside of the EU. EMIR 3 is said to have more relaxed rules around the recognition of CCPs outside of the EU, they said.

“It is unlikely that ESMA will overrule the decision by a local regulator. The UK parliament has also passed legislation giving more time for market infrastructure institutions outside of the UK to come under the new regime," said an official aware of the matter.

In October 2022, ESMA de-recognized six Indian clearing houses, including the Clearing Corporation of India (CCIL), which hosts the trading platform for government bonds and overnight indexed swaps (OIS). The decision is said to have been taken after RBI declined to grant ESMA the rights to audit and inspect CCIL. ESMA’s decision was to come into effect on 1 May.

De-recognition of the CCIL implies that these European banks will not be allowed to settle financial transactions through CCIL, allowing only bilateral transactions between banks. This would take away the benefits of settling transactions through a clearing house and would lead to significantly higher capital requirements under Basel norms.

"So far only Indian regulators has raised this issue over inter-country regulation over clearing houses. We are hoping that the EU will work out a saner arrangement under the new EMIR 3," said another official aware of the matter.