The European Securities and Markets Authority on Monday said it is seeking comment on whether to reduce the amount of initial margin or collateral required to cover losses on central clearing of derivatives trades.
ESMA’s existing rules require that collateral cover losses over two days’ activity on a position. The amended rules the agency is proposing would allow for collateral that would cover one day’s activity, which is allowed in the U.S. under Commodities Futures Trading Commission rules.
If ultimately approved by ESMA, the European Union’s financial regulator, and the EU, its rules under European Markets Infrastructure Regulation would give the U.S. clearing regime regulated by the CFTC equivalency status in the EU.
Under current ESMA rules, banks and other investors face much higher capital charges if derivatives are cleared on a central counterparty not considered equivalent by European regulators. The proposed amendments, if approved by the EU, would mean European clients using U.S. central counterparties would not be subject to additional capital charges.
The consultation paper is available on ESMA’s website.
ESMA is accepting comments through Feb. 1.