EU watchdog expects mandatory rate swaps clearing later in 2015
By Carolyn Cohn
EDINBURGH (Reuters) - The European Union is expected to make clearing of interest rate swaps mandatory from later this year, the bloc's securities market watchdog said on Thursday.
The 28-country bloc is rolling out rules to make derivatives safer and more transparent after their opacity exacerbated the 2007-09 financial crisis.
Mandating clearing of interest rate swaps (IRS), which account for 80 percent of the world's $690 trillion (459 trillion pounds) derivatives market, means they would have to pass through a third party which guarantees the completion of the trade even if one side goes broke.
Steven Maijoor, chairman of the European Securities and Markets Authority, told a pensions conference that the watchdog had completed an analysis of the interest rate swaps market and had recommended that the European Commission endorses mandatory clearing.
"I would hope before the end of the year they will start to apply a central clearing obligation," Maijoor said. "This upcoming central clearing obligation should result in a significant reduction of systemic risk in Europe."
Mandatory clearing of IRS would be phased in for different users, with pension funds coming under the net in 2017. Pension funds use interest rate swaps to cover risks from unexpected shifts in interest rates hitting their investments.
Maijoor told Reuters on the sidelines of the conference that credit default swap indices would be next in line for mandatory clearing, most likely in 2016.
Hans Hoogervorst, chair of the International Accounting Standards Board, who was speaking on the same panel, said mandatory central clearing was long overdue.
"Moving to central clearing has been one of the right responses to the crisis ... it's a mistake we didn't do it sooner," he told a Q&A session.
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EU watchdog expects mandatory rate swaps clearing later in 2015