Clearing of European interest rates swaps will start in June 2016, according to the European Securities Markets Association, marking the starting point in Europe’s implementation of the G20 commitment to centrally clear over-the-counter derivatives.
From June 21, several classes of OTC interest rate derivatives denominated in the G4 currencies (euro, sterling, yen and US dollar) must be cleared. Those comprise fixed-to-floating interest rate swaps (plain vanilla), floating-to-floating rate swaps (basis swaps), forward rate agreements, overnight index swaps.
The US mandated clearing of standardised interest rate swaps from February 2014 and Europe’s delay led to a bifurcation of the swaps market, with large parts moving to Europe to remain outside the US mandate.
The agreement of a start date for European rates clearing will ramp up pressure on European regulators to recognise US clearing rules, amid a long-standing dispute over equivalence. Without recognition, European counterparties clearing through US CCPs will attract higher capital charges.
ESMA’s focus will now switch to index credit default swaps and interest rate swaps denominated in Norwegian krone, Polish zloty and Swedish krona, in respect of which ESMA submitted draft regulatory technical standards to the European Commission in October and November 2015 respectively.
