On 19 May 2022, the European Securities and Markets Authority (ESMA) issued a final report on highly liquid financial instruments for central counterparty (CCP) investment policies under the European Market Infrastructure Regulation (EMIR).

The final report has been published in response to a mandate that the European  Commission issued on 18 May 2020 asking the ESMA to submit a report on whether the list of financial instruments that are considered highly liquid with minimal market and credit risk for CCP investments, in accordance with Article 47 of EMIR, could be extended and whether that list could include one or more money market funds (MMFs) authorised in accordance with the Regulation on MMFs. The preparation of the final report was paused due to the COVID-19 pandemic.

Key parts of the final report include:

  • Section 3 reviews the existing international and EU requirements on CCP investment policies and provides background on the legal mandate and the scope of the final report.
  • Section 4 provides a brief overview of CCP investment trade-offs, requirements and practices across the globe.
  • Section 5 includes the ESMA’s views on a potential extension of the list of financial instruments deemed highly liquid for CCP investments, including on MMFs.
  • Section 6 outlines further feedback received by stakeholders on CCP cash holdings.

Key findings in the final report include:

  • Further work is to be done by the ESMA regarding the extension of the list of eligible financial instruments to certain public entities and potentially to covered bonds pending further research. Further work will also be pursued within the CCP supervisory committee to ensure a common supervisory approach regarding CCP investment practices.
  • It would be premature to allow CCP investments in MMFs, as no category of MMFs currently meets all the conditions that define highly liquid financial instruments. The forthcoming review of the MMF Regulation is expected to assess possible changes to the regulatory framework that might make EU MMF adequate for CCP investments.

The final report has been sent to the Commission. The ESMA will consider further work to potentially amend relevant sections of regulatory technical standards or other relevant level 3 measures.