DTCC Connection

Feb 01, 2012 • DTCC Connection

E.U. Financial Reform: DTCC Takes Its Place at the Table

by Roland Kielman


As 2012 begins and the financial regulatory community on both sides of the Atlantic rushes to meet its obligations under the December G20 deadline, DTCC has expanded its outreach with key policymakers to ensure its views are actively considered during the reform process.


“Financial sector reform will have a lasting impact on our industry, with important consequences for our customers and investors globally, so it is critical to get it right,” said Larry Thompson, DTCC general counsel. “DTCC is taking an active role in shaping the outcome in the U.S. and Europe, representing our customers in the drive to reduce risk, increase transparency and strengthen certainty in the markets, which are objectives shared by financial firms, regulators and lawmakers alike.”


In Europe, DTCC has moved into high gear over the past year, establishing itself in the region’s political and financial centers with policymakers as they develop new rules that will govern two of the company’s primary service offerings: over-the counter (OTC) derivative trade repositories and central counterparty (CCP) services.


European approach

Unlike the U.S. Dodd-Frank Act, which seeks to transform the financial services industry through one sweeping piece of legislation, Europe is relying on a more nuanced legislative approach to determine how the industry is regulated – most notably through two primary initiatives, the European Market Infrastructure Regulation (EMIR) and the Markets in Financial Instruments Directive (MiFID).


DTCC has built close relationships with European policymakers involved in crafting both these pan-European financial reform proposals. The company’s outreach efforts are led by the Brussels-based Government Relations office, in concert with the Washington, D.C., office as well as the executive team. For instance, DTCC Executive Chairman Robert Druskin visited Europe in late November, with an agenda that included discussing the Eurozone crisis and DTCC’s OTC derivatives trade repositories with prominent policymakers, as well as presenting an award to a prominent member of the E.U. Parliament. Click here for more information.


Avoiding indemnity

One of DTCC’s top European policy objectives is an EMIR proposal to enhance stability in the OTC derivatives markets. Specifically, DTCC has focused on the issue of indemnification – a Dodd-Frank provision that DTCC has urged European policymakers to avoid replicating in EMIR.


Trade repositories, such as DTCC’s recently launched Global Trade Repository for Interest Rates, have been identified by the global regulatory community as an essential tool for enhancing market transparency and mitigating systemic risk in the OTC derivatives markets because of their ability to provide comprehensive position-level data to international supervisors.


DTCC’s position is that indemnification threatens the ability of regulators to access data by introducing unnecessary roadblocks to previously developed – and well-functioning – international data sharing agreements. Now, in large part due to DTCC’s sustained outreach effort to the European Parliament and with the Council and Commission, EMIR does not contain reciprocal indemnity language.


“From the beginning, we built on DTCC’s reputation as a reliable driver of sound public policy, along with our unique position in the OTC derivatives space, to influence the debate,” said Andrew Douglas, DTCC’s head of European Public Affairs. “One of the primary goals of EMIR is to promote market transparency in the OTC derivatives space, and we’ve made it clear that including reciprocal indemnity language would achieve exactly the opposite.”


Promoting CCP competition

On another front, DTCC and its European subsidiary that clears cash equities, EuroCCP, have been actively involved in debating the elements of EMIR that aim to create a common set of rules and minimum safety standards to govern central counterparties (CCPs), including derivatives CCPs.


EuroCCP will be one of the many CCPs subject to EMIR’s authority. Another of the company’s top policy objectives was to promote choice of clearing service provider through non-discriminatory access of CCPs to trade feeds and interoperability between CCPs. In this regard, DTCC seems poised to achieve its goal. As it currently stands, EMIR reinforces the principle of competition among CCPs that will provide users choice, first in the cash equities market and in OTC derivatives in a few years’ time.


MiFID review

As EMIR nears completion, the revision of MiFID is also underway.


Originally implemented in November 2007, MiFID is a key component of the European effort to provide consistent regulatory supervision of the European investment services industry. The 2008 financial crisis exposed some of the directive’s shortcomings, and Europe’s legislative bodies are now reviewing and amending it.


DTCC is actively involved in the review process, having recently submitted a formal response to a questionnaire issued by the European Parliament. In line with its position on EMIR, DTCC hopes to reinforce the principle of CCP open access, among other things.


The process of amending MiFID, beginning under the current Danish presidency, is likely to move relatively slowly as the E.U. and Eurozone focus on resolving the ongoing sovereign debt crisis. Final agreement is not expected before late 2012 or early 2013 at best.


Despite MiFID’s drawn-out timetable, Dan Cohen, DTCC managing director, Government Relations, anticipates another busy year for DTCC as it expands its outreach within the European policymaking scene. “In a relatively short period of time, we have achieved a great deal in Europe,” Cohen said. “We are now viewed as a reliable resource within Europe’s top policymaking circles and DTCC has firmly established itself as a dependable thought leader on issues related to financial reform and post-trade infrastructure.


“The challenge now is to build on the momentum of the past year and redouble our efforts to promote sound financial policy – not just in Europe but on a global scale – and I’m confident we will do just that.” @


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