EU recognizes CCPs authorized by the SEC

Feb 24, 2021 Benn-Ibler Rechtsanwälte

According to Regulation (VO) 648/2012, clearing houses acting as central counterparties (CCPs) whose regulatory standards are equivalent to EU standards may provide clearing services to clearing members or trading venues established in the Union. In an implementing decision now adopted, the EU Commission specifies the conditions under which the rules of the US Securities and Exchange Commission (SEC) are considered equivalent.

The prior determination of equivalence of legal and supervisory mechanisms is intended to ensure that CCPs in third countries are subject to appropriate legal provisions that (like the EU provisions) reduce systemic risks by relying on safe and sound CCPs when clearing over-the-counter (OTC) derivatives contracts.

The EU Commission's implementing decision deals with the requirements of the SEC. This authority is responsible for CCPs that clear certain value-based derivative contracts. For other derivative contracts, the US authority Commodity Futures Trading Commission (CFTC) is responsible.

The EU Commission notes that the requirements to which US CCPs are subject within the SEC's remit are broadly in line with EU requirements. However - according to the Commission's findings - there are certain differences, which is why US CCPs are not authorized to operate in the EU unconditionally.

On the one hand, the Commission notes liquidity requirements that deviate from EU standards (sufficient liquidity to cover at least one default of the two clearing members with the largest risk positions). In addition, US CCPs are not subject to statutory minimum liquidation deadlines (compared to two days or five days in the EU, depending on the type of settlement). Furthermore, in the view of the EU Commission, US law does not provide for measures to avoid procyclical effects that are equivalent to EU law.

The EU Commission therefore approved equivalence by regulation only on the condition that the respective CCP has more closely specified internal rules and procedures that compensate for the differences identified.

Commission Implementing Decision (EU) 2021/85 of 27 January 2021 on the equivalence to the requirements of Regulation (EU) No 648/2012 of the European Parliament and of the Council of the regulatory framework of the United States of America for central counterparties that are authorized and supervised by the U.S. Securities and Exchange Commission