MFA Submits Letter to ESMA on Straight-Through-Processing

August 05, 2012

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Topics: aggregate limit Allocations, alternative liquidity providers, anti-competitive effects, anti-competitive restrictions, bid-ask spread, bilateral credit agreement, bilateral derivatives transactions, bilateral market, bilateral master agreements, bilateral risk management, block transactions, breakage, bundled trade, CCP, CCP Requirements Task Force, CDS, central counterparty, central limit order books, CFTC, Chicago mercantile exchange, Christopher Seagon v. Deko Marty Belgium NV, clearing, clearing acceptance process, clearing agreement, clearing member, clearing obligation, clearinghouse, CME, Commission v. Council ERTA, Commodity Futures Trading Commission, competition, competitive liquidity, Continental Cans, cost-benefit analysis, Council of the European Union, counterparty credit risk, Court of Justice of the European Union, credit default swap, credit intermediation, credit limit, credit limit order bookc, credit limits, credit risk, customer clearing documentation, DCM, DCO, dealer-to-customer platforms, dealer-to-dealer clearing, dealers, delegated acts, derivatives, derivatives clearing organization, derivatives markets, derivatives transactions, Designated Contract Market, designation notice, direct clearing members, directive, documentation, Dodd-Frank Act, due diligence, efficiency, electronic trading, EMIR, endowments, energy derivatives, ESMA, ESMA Task Forces, EU, EU Member State, European Commission, European Parliament, European Securities and Markets Authority, European Union, executing counterparty, execution, execution platform, FIA, financial stability, Financial Stability Board, financial system, FSB, futures, Futures Industry Association, futures market, ICE Clear Credit LLC, ICE energy swaps, institutional investors, interconnectedness, interest rate swap, international harmonization of regulations, International Swaps and Dealers Association, investment managers, ISDA, latency, LCH Clearnet, limit check, liquidity, liquidity fragmentation, Liquidity Providers, Major Swap Participant, Managed Funds Association, mandatory clearing, market access, market participants, matched transactions, operational market processes, operational risk, OTC derivatives, OTC Derivatives Task Force, OTC derivatives transactions, over-the-counter derivatives, pension fund, real economy, real-time acceptance, real-time processing, regulatory technical standards, risk, risk management, risk-based, SEF, settlement, straight-through processing, swap dealer, Swap Execution Facility, systemic risk, technical standards, trade repositories, Trade Repositories Task Force, trading desk, trading venues, transaction capture facility, transparency, trilateral clearing agreements, trilateral documentation, underlying clients, United States, voice execution, volatility,
From: MFA, Stuart Kaswell



On August 5, MFA submitted a comment letter to the European Securities and Markets Authority (ESMA) to advocate for the benefits of, and legal justification for, including a requirement for straight-through-processing in ESMA’s regulatory technical standards under EMIR Level II (EMIR RTS).  In the letter, MFA explained that straight-through-processing of derivatives transactions ensures that parties to a derivative transaction are informed in real-time (or as close to real-time as possible) whether the transaction has been accepted for clearing.  Once the transaction is accepted for clearing, the parties’ counterparty risk exposure is to the central counterparty (CCP) rather than the other market participant.  MFA also noted that Article 11 of EMIR sets forth requirements related to mitigating risks of each non-cleared transaction.  Consistent with the risk mitigation elements of EMIR, MFA recommended that the EMIR RTS should mandate the compression or effective elimination of the time between execution and confirmation of clearing acceptance, as is the norm in other cleared derivatives markets.