Investment & Pensions Europe
European Market Infrastructure Regulation (EMIR) is set to shift huge volumes of OTC transactions to central clearing houses and whilst this highlights a great opportunity for developing a CCP offering, Cecile Sourbes of IPE looks at the challenges of adapting business models.
Under EMIR, the aim is to reduce the risk in derivatives transactions. One solution that Jamie Lake, Principle Consultant, GreySpark, offers is via interoperability, allowing participants to net off their trades across a range of clearing houses that have agreements with one another. However he points out that this may not be favourable as it brings direct competition.
Lake also finds that this will give rise to the ‘push or ping’ model of pre trade credit checking but highlights that an agreed consensus is lacking. He goes on to explain that one of the key challenges facing the transition to a cleared OTC market, is having an agreed standard on clearing a product. Working groups within clearing houses, Lake outlines, are currently formulating rules to determine unique product identifiers (UPI) and unique swaps identifiers (USI).
The article goes on to outline further debate around the standardisation of products and looks at whether the numerous requirements under EMIR will deter businesses from CCP registration.