Financial services: European Commission adopts additional equivalence decisions for US exchanges

This article is brought to you in association with the European Commission.

The European Commission has today adopted a decision declaring that a number of United States exchanges supervised by the US Securities Exchange Commission (SEC) are equivalent to EU regulated markets. As a result, derivatives traded on these US exchanges will now be treated as exchange-traded derivatives under EU law.

In addition, the Commission has also amended its equivalence decision regarding US central counterparties (‘CCPs’). It now covers certain products (e.g. mortgage-backed securities issued or guaranteed by certain government sponsored agencies traded on a ‘To-Be-Announced basis’ (‘TBAs’). 

These decisions complement the equivalence decision adopted by the Commission for US CCPs registered with the US Securities and Exchange Commission adopted in 2021.

Commissioner Mairead McGuinness, responsible for Financial Stability, Financial Services and the Capital Markets Union, said: “Today’s decisions are essential, facilitating EU market participants’ access to SEC-supervised US CCPs. These decisions are in the interest of the EU – we want our capital markets to be better integrated with other international markets.  We look forward to continued good cooperation between the EU institutions and agencies and the US Securities and Exchange Commission.”

A number of US CCPs supervised by the US SEC have applied to the European Securities and Markets Authority (ESMA) for recognition based on the equivalence decision adopted in 2021. Today’s decisions will allow ESMA to continue its work on the recognition process. Upon successful completion of the recognition process, these US CCPs will be able to provide central clearing services in the EU, to EU clearing members and trading venues.

Background

Central counterparties (CCPs) are bodies that operate between the buyer and seller of a derivative contract, becoming the buyer to every seller and the seller to every buyer. Their use was encouraged by the G20 following the financial crisis, to reduce risk in derivatives trading. Derivatives markets are global in nature.

The European Market Infrastructure Regulation (‘EMIR’) provides a framework for the recognition of non-EU central counterparties. This framework ensures that non-EU CCPs that comply with requirements that are equivalent to those laid down in EMIR may offer central clearing services in the European Union.

On 27 January 2021, the Commission adopted a decision declaring that the US SEC regime for CCPs as equivalent under Article 25(6) of EMIR. This decision sets out a number of conditions for clearing of derivatives. Conditions differ depending on whether a derivative is traded on an exchange (‘exchange-traded derivative’) or Over-The-Counter (‘OTC derivatives’). ESMA must verify that US CCPs that apply for recognition fulfil the conditions that are relevant for them, based on their clearing business.