Derivatives Central Clearing Dates Finally Set for Europe

European regulators have finally quashed the uncertainty surrounding the implementation date of mandatory central clearing rules for interest rate derivatives by fully approving the new rules.

The European Commission has now adopted the rules which make it mandatory for certain interest rate swaps to be cleared through central counterparties such as LCH.Clearnet and Eurex Clearing.

Mandatory central clearing will now take effect in Europe from April 2016. Buy-side firms will have six months from that date to comply with the new rules.

The new regulations stem from the G20 summit in Pittsburgh 2009, but have taken much longer than planned to come to fruition.

The US rolled its own central clearing rules out in 2013, while the European Securities and Markets Authority has been fine-tuning its own regulations and going back and forward with the European Commission.

Today’s decision from the Commission gives the market clarity in a process which has plagued market participants with uncertainty from the outset.

“Today we take a significant step to implement our G20 commitments, strengthen financial stability and boost market confidence. This is also part of our move towards markets that are fair, open and transparent,” said Jonathan Hill, EU Commissioner for Financial Stability, Financial Services and Capital Markets Union, in a statement.

The rules will apply to plain vanilla interest rate derivatives, float-to-float swaps – known as basis swaps, forward rate agreements and overnight index swaps.

Interest rate swaps make up around 80% of all global derivatives and the estimated daily turnover in the EU of OTC interest rate derivative contracts denominated in G4 currencies was over €1.5 trillion as of April 2013.

The new rules are part of the G20’s plan to reduce systemic risk in the financial markets by playing a central counterparty in the middle of the previously bilateral trades.