Context: The European Securities and Markets Authority (ESMA), the European Union’s financial markets regulator and supervisor, has derecognised six Indian central counterparties (CCPs) from April 30, 2023.
What are Clearing corporations (CC)?
CC is an organization associated with an exchange to handle the confirmation, settlement, and delivery of transactions in a prompt and efficient manner.
Examples of CCs:
The CCPs are The Clearing Corporation of India (CCIL), Indian Clearing Corporation Ltd (ICCL), NSE Clearing Ltd (NSCCL), Multi Commodity Exchange Clearing (MCXCCL), India International Clearing Corporation (IFSC) Ltd (IICC), and NSE IFSC Clearing Corporation Ltd (NICCL).
Why has ESMA derecognized Indian CCs?
The decision to derecognise Indian CCPs came due to ‘no cooperation arrangements’ between ESMA and Indian regulators – the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) and the International Financial Services Centres Authority (IFSCA).
As per the European Market Infrastructure Regulations (EMIR), a CCP in a third country can provide clearing services to European banks only if it is recognised by ESMA. With the withdrawal of recognition, these CCPs will no longer be able to provide services to clearing members and trading venues established in the EU.
Government’s stand – ESMA’s threat is unreasonable since all clearing corporations are well-regulated in India.