Sebi and European Markets Authority Sign MoU to Strengthen Cooperation on Central Counterparties
Key Takeaways
- •Sebi and ESMA signed a new MoU to cooperate and share information on central counterparties, replacing a 2017 pact.
- •Central counterparties guarantee trades between buyers and sellers, and their supervision became more critical after post-2008 G20 reforms mandated central clearing of standardized derivatives.
- •Under the EU's EMIR framework, ESMA can recognize third-country CCPs to serve EU clearing members, which depends on cooperation agreements with home regulators.
- •A prior breakdown in EU-India supervisory talks had put Indian CCPs' EU recognition in question, an issue the renewed MoU is meant to resolve.
- •The arrangement affects whether European banks and clearing members can continue or expand activity on Indian clearing houses without disruption.
India's securities regulator, the Securities and Exchange Board of India (Sebi), and the European Securities and Markets Authority (ESMA) have signed a memorandum of understanding (MoU) to enhance cooperation and the exchange of information regarding central counterparties (CCPs).
The new agreement replaces a previous pact signed in 2017 between the two regulators. It is intended to facilitate safer cross-border clearing and support the regulation of market infrastructure, aiding cross-border trade between the two jurisdictions.
Central counterparties are clearing houses that stand between buyers and sellers in derivatives and securities transactions, guaranteeing the terms of a trade even if one party defaults. Because many clearing firms and financial institutions operate across borders, regulators increasingly rely on cooperation arrangements to supervise CCPs that clear trades for foreign market participants. Such arrangements have taken on greater significance since the 2008 global financial crisis, after which G20 reforms mandated central clearing of standardized derivatives, concentrating risk in CCPs and raising the stakes of effective supervision.
Sebi is the statutory regulator of India's securities and commodities markets, while ESMA is an independent EU authority that safeguards the stability of the European Union's financial system, including the supervision of CCPs recognized to clear trades for EU members. Under the EU's European Market Infrastructure Regulation (EMIR), ESMA can recognize third-country CCPs to serve EU clearing members, a process that depends on cooperation agreements with the home regulator. The earlier 2017 MoU operated in this context, and a breakdown in EU-India supervisory talks had previously left Indian CCPs' EU recognition in question, an issue the renewed framework is intended to address.
The MoU establishes a framework for the two authorities to exchange information and coordinate their oversight of central counterparties operating in or serving both markets. For market participants, the practical significance lies in whether European banks and clearing members can continue or expand their activity on Indian clearing houses without disruption, a question that hinges on the durability of supervisory arrangements such as this one.
(Source: Economic Times)
