The European Commission has put forward measures to make EU clearing services more attractive to further develop the EU's Capital Markets Union (CMU).
Under the proposals, central counterparties will be able to expand their products more quickly while strengthened supervisory frameworks are set to be introduced to allow for a more resilient clearing system.
The cutting of red tape comes as the Commission seeks to alleviate its dependency on London-based market infrastructure to clear derivative trades.
Improved transparency on margin calls will provide market participants better foresight in predicting changes, the European Commission said in a statement.
The plan will also see reduced exposure of EU market participants to central counterparty clearing (CCP) in third countries, notably the UK, for derivatives identified as substantially systemic by the European Securities and Markets Authority (ESMA).
Under the changes, all relevant market participants will be mandated to hold active accounts at EU CCPs for clearing at least a portion of certain derivative contracts. Those who opt to continue utilising London-based services will face capital charges.
The move will improve the management of financial stability risks across the bloc, the European Commission stated.
Certain corporate insolvency rules across the EU will be harmonised, making them more efficient and helping promote cross-border investment, while a new Listing Act will reduce the administrative burden for companies.
The Commission said the EU needs safe, robust and attractive clearing for a well-functioning CMU.
"If clearing does not function efficiently, financial institutions, companies and investors face more risks and higher costs – as the 2008 financial crisis showed," it stated.
The red tape cuts as the Commission seeks to alleviate its dependency on London-based market infrastructure to clear derivative trades.
Commissioner Didier Reynders said the proposal would address inconsistencies within insolvency regimes.
"Not only does this situation cause legal uncertainty and hinder investments across EU borders, it also leads to excessive recovery times and high judicial costs.
"The new rules will ensure a level playing field - supporting investors, promoting free capital movement and strengthening the market by laying down common safeguards and standards fit for the digital age," he said.
The package has been welcomed by Thomas Richter, CEO of the German Investment Funds Association BVI. He said it is good that the Commission is seeking to reduce the dependence of asset managers in the EU on clearing houses in post-Brexit London.
He said: "We welcome measures that facilitate the process of transition for market participants, such as setting up active accounts with clearing houses in the EU.
"The Commission should not give up its aim of moving euro clearing to the EU. This would ensure that the clearing of OTC derivatives takes place within the required EU framework and result in improved investor protection," he added.
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