Nasdaq OMX has become the first market infrastructure owner to receive approval for its clearing house to operate under tougher new European regulations designed to tighten oversight of derivatives markets.
The Swedish Financial Services Authority formally approved the group’s clearing business on Tuesday after the European college of regulators overseeing the application gave its assent last week.
The move is set to start a countdown to mandatory clearing of derivatives trades in Europe in the coming year. The Nordic exchanges operator’s approval also marks a breakthrough for a long-running process which some executives feared had become politicised. Its rival Eurex Clearing, which is owned by Deutsche Börse, had its application was rejected by the college in spite of a full risk assessment conducted by BaFin, the national German authority. Eurex is continuing to work with authorities.
The Bank of England is keen to ensure the main clearing houses under its watch, LCH.Clearnet and ICE Clear Europe, are also approved by the college.
The region’s clearing houses have to reapply to operate in Europe under new legislation known as the European Market Infrastructure Regulation (Emir) that is expected to force many institutional investors, hedge fund managers and pension funds to clear their risk-offsetting derivatives trades for the first time.
Qualifying clearing houses are subject to tougher risk models and stress testing as well as higher standards on protecting customer assets. In return for accepting higher standards in Emir and other global legislation like Basel III, clearing houses can offer customers greater financial incentives than for uncleared trades, or unqualified clearing houses. The incentives include greater netting on the margin investors have to place at clearing houses to trade derivatives. More than 20 clearing houses have applied for European approval.
In receiving European assent, Nasdaq OMX has also become the first clearing house to meet European and Basel standards.
“Now, as the first to be Emir-authorised, we can focus on further developing our offering, including an expansion within interest rate swaps and German power derivatives, as well as introducing clearing of foreign exchange products,” said Hans-Ole Jochumsen, executive vice-president, transaction services Nordic, Nasdaq OMX.
Nasdaq OMX is considering clearing both listed and over-the-counter products, including non-deliverable spot FX and derivatives. The group is one of the largest clearers of interest rate swaps in Europe, having cleared SKr200bn (£18bn) in interest rate swaps.
The approval by a college of regulators and central banks from Denmark, Finland, Norway, Sweden, and the UK, as well as the European Central Bank (ECB) and the European Securities and Markets Authority (Esma). Nasdaq OMX was also the first operator to submit an application for a clearing licence, in April last year.