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EU watchdog gives forex futures breather from clearing
February 4, 2015 / 2:55 PM / 3 years ago

EU watchdog gives forex futures breather from clearing

LONDON, Feb 4 (Reuters) - European Union regulators have given the $127 billion daily currency futures market some breathing space by exempting it from mandatory clearing of transactions in the 28-country bloc.

The European Securities and Markets Authority (ESMA) is implementing new rules to make derivatives more transparent and safer, such as through clearing which uses a third party to guarantee the completion of a trade even if one side goes bust.

Last year, ESMA held a public consultation on whether so-called non-deliverable forwards (NDFs), a type of futures contract in currencies, should be cleared.

NDFs allow investors to take positions in currencies that are subject to official controls.

The sector told ESMA in its consultation that it wanted a pause, saying clearing NDFs was in its infancy, the legal definition of the asset class was not consistent across the EU, and more convergence in regulation was needed at the global level first.

“ESMA believes that more time is needed to appropriately address the main concerns raised during the consultation,” the EU watchdog said in a statement.

However, the door will be kept open to requiring clearing at a later date, it said.

Some trades are already voluntarily cleared through LCH.Clearnet.

The Bank for International Settlements (BIS), a global forum for central banks, said daily turnover of NDFs in London was $60 billion in April 2013, or 36 percent of global trading.

Trading in London is linked to currencies such as the Brazilian real, the Chinese renminbi and the Indian rupee

The BIS expects the market to continue to grow faster than the foreign exchange market as long as authorities try to insulate their domestic financial systems from global market developments. (Reporting by Huw Jones; Editing by Mark Potter)

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