Today, FIA responded to a communication from the European Commission on challenges for critical financial market infrastructures and for further developing the Capital Markets Union. Specifically, the Communication mentions that possible options for safeguards to the financial system could include forced relocation of and/or enhanced supervision of euro clearing.
FIA acknowledged the importance of protecting financial stability, while explaining that the forced relocation of euro-denominated cleared derivatives would be the most disruptive and expensive approach to overseeing third-country central counterparties.
“It’s important that we allow market forces to determine the appropriate location for euro clearing,” said Walt Lukken, president and CEO of FIA. “Forced relocation would fragment liquidity, increase systemic risk, and raise costs for the end-users that rely on these markets for hedging and managing their exposure to risk. Instead, appropriate safety, soundness, and confidence in clearing could be achieved through enhanced oversight or recognition with far less cost or disruption to markets.”
FIA noted that forced relocation could nearly double margin requirements from $83 billion USD to $160 billion USD.
“FIA believes that the Commission’s suggestion of recognition and enhanced supervision are more effective ways to protect financial stability than forced relocation of the clearing of euro-denominated products,” Lukken said.