MAS and Esma ink cross-border CCP clearing deal

The Monetary Authority of Singapore (MAS) has inked a deal with the European Securities and Markets Authority (Esma) that paves the way for central counterparties (CCPs) in the country to clear derivatives for EU market participants while remaining subject to domestic regulation and supervision.

The memorandum of understanding (MoU) was announced by the two entities yesterday, but entered into force on February 10. It is established under the European Markets Infrastructure Regulation (Emir), a 2012 legal initiative aimed at ensuring the stability of EU over-the-counter derivative markets.

Emir allows for the establishment of "cooperation agreements" with non-EU authorities whose regulatory framework for CCPs have been deemed equivalent to EU standards by the European Commission (EC).

CCPs in such jurisdictions will be able to "obtain recognition in the EU, and can therefore be used by market participants to clear standardised OTC derivatives as required by EU legislation, while remaining subject solely to the regulation and supervision of their home jurisdiction", according to the commission.

The details of cooperation agreements must be fleshed out bilaterally, however, to ensure there are sound legal mechanisms "allowing for the exchange of information" between regulators, according to an Esma spokesperson. The MoU is "basically laying down the terms of how to do that", he added.

The MoU "paves the way for Esma-recognised CCPs in Singapore to be used by EU market participants to satisfy their mandatory clearing obligations under EU law," MAS said in a statement.

Moreover, EU banks will enjoy lower capital charges for their clearing exposures to recognised CCPs, the ESMA spokesperson confirmed.

To date, three Singapore CCPs – Singapore Exchange Derivatives Clearing Limited, The Central Depository (Pte) Limited and ICE Clear Singapore – have applied for recognition by Esma. Their applications will be decided in the "near future", the spokesperson confirmed.

The EC approved regulatory regimes in Singapore, Australia, Hong Kong and Japan last October.

"Although rules may differ in the detail," the commission said at the time, "international regulators are pursuing the same objectives to promote financial stability by promoting the use of CCPs that are subject to robust prudential requirements".

Michel Barnier, commissioner for internal markets and services, added reform of derivatives markets would "only work in international markets if regulators and supervisors rely on each other".

The commission is currently assessing regulators in 12 additional jurisdictions, including the US.

Esma signed similar deals with the Reserve Bank of Australia and the Australian Securities and Investments Commission in December, and the Hong Kong Securities and Futures Commission in January.

It agreed on a memorandum of cooperation with the Financial Services Agency of Japan last month.