OREANDA-NEWS.

Evolving regulatory landscape; SGX granted equivalence status in Europe

By way of background, any Central Counterparty (CCP) outside of the European Union (EU) that wishes to provide clearing services to either clearing members or trading venues established within the EU is required to become recognised by the European Securities & Markets Authority (ESMA) as a ‘third-country CCP’. 

The implications for CCPs of not having ESMA recognition are potentially significant. If a non-EU CCP is not granted equivalence status for instance, it would not be considered a ‘Qualifying CCP’ (QCCP) in accordance with the Capital Requirements Directive (CRD IV) and Basel III risk-weightings, which would mean EU-based clearing members incur significantly higher costs to clear through non-EU CCPs. Furthermore, non-EU CCPs would not be permitted to provide clearing services to EU-based clearing members or trading venues that are subject to the EU clearing mandate. From 15 December 2015, in absence of any further extension of the CRR transitional period by the EC, this will become effective.

Last month, Singapore Exchange (SGX) was officially recognised by ESMA and will continue to be able to offer both securities and derivatives clearing services in the EU. This also enables EU-based financial services firms to treat SGX as a QCCP for the purposes of Basel III capital requirements.

Open for global business

In addition to SGX’s recognition by ESMA in Europe, SGX became the first clearing house in Asia to receive the Derivatives Clearing Organisation (DCO) status from the U.S. Commodity Futures Trading Commission (CFTC) in 2013. In addition, SGX was the first in Asia to meet the Principles for Financial Market Infrastructure (PFMI) standards set by the International Organisation of Securities Commissions (IOSCO) and Committee on Payment and Settlement Systems (CPSS), and in January 2015 SGX also received Foreign Board of Trade (FBOT) status from the CFTC.  

These recent achievements affirm SGX’s commitment to provide every constituent of the market a worry-free access to an international trading and clearing platform with the highest risk management and regulatory standards internationally, and provide customers globally with clarity and confidence in using SGX for their risk management needs.