Financial stability: New EU rules on central clearing for certain credit derivative contracts 

Today’s decision implements the clearing obligation under the European Market Infrastructure Regulation (‘EMIR’). It refers to some types of credit default swaps.

The European Commission has adopted a new set of rules that requires certain over-the-counter (OTC) credit derivative contracts to be cleared through central counterparties (CCPs). Mandatory central clearing is a vital part of the response to the financial crisis; it follows commitments made by world leaders at the G-20 Pittsburgh Summit in 2009 to improve transparency and mitigate risks.

Jonathan Hill, EU Commissioner for Financial Stability, Financial Services and Capital Markets Union, said: “Today’s decision marks another step towards making good on our G20 commitments to bolster financial stability, reduce risks and boost market confidence.“

Today’s decision takes the form of a Delegated Regulation and implements part of the clearing obligations set out in the European Market Infrastructure Regulation (‘EMIR’).

The Delegated Regulation refers in particular to certain credit default swaps (CDS) that are denominated in Euro covering some European corporates.By requiring these types of credit default swaps to be cleared through CCPs, financial markets become more stable and less risky. This creates an environment that is more conducive to investment and economic growth in the EU.

This clearing obligation will enter into force subject to scrutiny by the European Parliament and the Council of the EU. It will be phased in over three years to give extra time for smaller market participants to comply.