Third-country equivalence throws up clearing uncertainty

By Hazel Sheffield
21 May 2014

Foreign counterparties that fall under the scope of European Markets Infrastructure Regulation could find that derivatives transactions priced as OTC are retrospectively eligible for clearing under third-country equivalence rules, according to lawyers. It means that participants could be entering OTC trades at different pricing levels compared to those trades eligible for clearing, while finding later that they will also have an obligation to clear that OTC trade.

Current regulatory technical standards on third-country equivalence require a non-EU trade to be cleared when one of the two third-country counterparties is guaranteed by an EU counterparty, where the guarantee amounts to an aggregated notional of €8 billion or 5% of the over-the-counter derivatives exposure of that EU ...

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