Article 85(4) of the EU Regulation on derivatives, central counterparties and trade repositories (EMIR) provides that the European Commission (Commission) shall, in cooperation with Member States and the European Securities and Markets Authority (ESMA), and after requesting the assessment of the European Systemic Risk Board (ESRB), draw up an annual report assessing any possible systemic risk and cost implications of interoperability arrangements focussing at least on the number and complexities of the arrangements and the adequacy of risk management systems and models.
On 20 January 2016, the ESRB published its assessment. Now that all interoperability arrangements in the scope of EMIR involving an EU central counterparty (EU CCP) have been approved according to article 54 of EMIR, the Commission had requested that ESMA provide its input to the above mentioned report.
On 1 March 2016, ESMA published its final report on possible systemic risk and cost implications of interoperability arrangements. The final report begins with a general overview of the interoperability concept and the applicable EU regulatory framework with a description of the current interoperable links involving an EU CCP, including on their number and complexity. There follows an assessment of the benefits and impacts on costs for the relevant parties. The last section of the final report provides a prudential analysis at the CCP level and the risk devices used to mitigate the potential risks arising from interoperability including some quantitative data. The key risk under consideration is the counterparty credit risk resulting from exposures between interoperable CCPs.
The final report is being submitted to the Commission and is expected to feed into the report on any possible systemic risk and cost implications of interoperability arrangements that the Commission will prepare and submit to the European Parliament and the Council of the EU.
View ESMA issues report on risks and costs of CCP interoperability, 1 March 2016