The Equivalence Framework for Central Counterparties: EU Regulation and Supervision

Abstract

The present chapter analyses the regulation and supervision of Central Counterparties (CCPs) in the European Union. The European Market Infrastructure Regulation (EMIR) establishes a regulatory framework for EU and non-EU CCPs to operate in the Internal Market, offering clearing services to EU clearing members and trading venues. While EU CCPs are subject to EMIR requirements, enforced by national authorities, Third-Country CCPs (TC-CCPs) can access the EU only if the European Commission considers their home regulation to be “equivalent” to EMIR. The chapter is organized as follows. First, it examines the relationship between central clearing and financial stability, outlining the centrality of CCPs for the post-crisis financial system and their nature of “too-big-to-fail” market infrastructures. Second, it analyses the regulatory and supervisory framework for CCPs established in the European Union and third countries. Thereafter, it describes the most recent reform of the framework for TC-CCPs (the EMIR 2.2 regime), where ESMA and the ECB are given enhanced powers to supervise systemically important TC-CCPs. Finally, the chapter concludes by assessing whether the equivalence framework for TC-CCPs can be considered effective from a financial stability perspective. The chapter finds that further improvements would be necessary to fully protect EU financial stability from potential risks.KeywordsCCPsEMIREquivalenceEMIR 2.2ClearingRelocationBrexitLondonCFTCESMA