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Equivalence decisions adopted for CCPs and trading venues in non-EU jurisdictions

The European Commission has agreed that India, Brazil, New Zealand, the United Arab Emirates (UAE) and the Dubai International Financial Centre have equivalent regulatory regimes for central counterparties (CCPs) to the European Union.21 Dec 2016

Japan's commodities market also has an equivalent regime, and the rules governing certain financial markets in Australia, Canada, Japan and Singapore can be deemed equivalent to those in the EU, the Commission said.

CCPs are bodies that operate between the buyers and sellers to a trade, meaning that neither party to the trade itself is exposed to the risk of the other defaulting.

Under rules introduced after the banking crisis EU banks must ensure they have capital to cover part of their exposure to derivatives trades transacted through CCPs. That requirement has been higher for trades routed through CCPs in countries whose rules are not seen by the EU as 'equivalent' to EU rules.

CCPs from the newly-approved countries can now apply to the European Securities and Markets Authority (ESMA) for recognition, the Commission said. ESMA will process the application in cooperation with the relevant regulators of that CCP.

European Commission vice-president Valdis Dombrovskis, responsible for financial stability, financial services and capital markets union, said: "The EU cooperates closely with third countries to protect financial stability while supporting firms to operate across borders in global markets. We carry out a rigorous, case by case assessment of each country, and I am pleased to announce today equivalence decisions for ten jurisdictions. These decisions will contribute to market certainty and avoid fragmentation."

The Commission settled a long-running argument over US derivatives clearing houses in March by recognising US regulation as equivalent to that in the EU.

The G20 has encouraged the use of CCPs since the financial crisis to reduce risk in derivatives trading. The European Commission has recently proposed new EU rules for the recovery and resolution of CCPs to ensure that they can be dealt with effectively when things go wrong.