EU Requires Interest-Rate Derivatives Clearing in 3 Currencies

Over-the-counter interest-rate derivative contracts denominated in the Swedish, Norwegian and Polish currencies must be cleared through central counterparties under new European Union rules.

“Today we are taking a significant step to implement our G-20 commitments, strengthen financial stability and boost market confidence,” Jonathan Hill, the EU’s financial-services chief, said in a statement. “This is also part of our move toward markets that are fair, open and transparent.”

Interest-rate derivative contracts in Swedish krona, Norwegian krone and Polish Zloty are the third set of derivatives subjected to the clearing obligation under the European Market Infrastructure Regulation, joining other classes of interest rate derivative contracts and some credit default swaps, according to the European Commission, the EU’s executive arm.

Scandinavia’s finance industry had resisted stricter rules for the region’s over-the-counter derivatives market. Last year, Sweden’s debt office echoed concerns raised by banks and brokers about possibly faulty data behind a derivatives study in Scandinavian currencies that would be used in imposing clearing requirements on interest-rate swaps and forward-rate agreements in the region.

Lars Afrell, senior vice president of the Swedish Securities Dealers Association, said the commission’s decision was expected, but he renewed concerns about the clearing requirement.

“What happens if something goes wrong,” he said. “There’s only one CCP, and if the clearinghouse suddenly stops clearing, or worse, goes bust, then you can’t trade. It’s just ridiculous and there’s no fast way forward. It takes one year to remove derivatives from the list.”

The clearing obligations will enter into force after scrutiny by the European Parliament and EU member states. It will be phased in over three years, the commission said.

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