21.11.2017   

EN

Official Journal of the European Union

L 304/6

(1)

Indirect clearing arrangements should not expose central counterparties (CCPs), clearing members, clients, indirect clients or further layers of indirect clients to additional counterparty risk, and the assets and positions of indirect clients should benefit from an appropriate level of protection. It is therefore essential that any type of indirect clearing arrangement complies with minimum conditions for ensuring their safety. To that end, the parties involved in indirect clearing arrangements should be subject to specific obligations, and indirect clearing arrangements should only be allowed where they meet the conditions defined in this Regulation.

(2)

As the assets and positions of the counterparty to which indirect clearing services are provided should benefit from protection with equivalent effect to that referred to in Articles 39 and 48 of Regulation (EU) No 648/2012 of the European Parliament and of the Council (2), the different concepts of indirect client are pivotal for this Regulation and should be defined herein.

(3)

Taking into account that clearing members should qualify as participants within the meaning of Directive 98/26/EC of the European Parliament and of the Council (3), and to ensure an equivalent level of protection to indirect clients as granted to clients under Regulation (EU) No 648/2012, clients providing indirect clearing services should be credit institutions, investment firms, or third country entities equivalent to credit institutions or investment firms.

(4)

The higher degree of intermediation activity between a CCP and the different layers of indirect clients requires additional operational steps, additional accounts as well as more complex technological solutions and processing flows. This results in an increased complexity of indirect clearing arrangements compared to client clearing arrangements. That higher degree of intermediation should therefore be mitigated with requirements for an alternative and operationally simpler choice of account structures for indirect clearing arrangements than for client clearing arrangements.

(5)

Client clearing arrangements require offering individually segregated accounts. For indirect clearing arrangements, however, only a gross omnibus indirect account structure with a mechanism to transfer called margin and, if agreed, margin in excess of called margin, from the indirect client all the way up to the CCP, and without allowing any netting of positions of different indirect clients in the same gross omnibus indirect account, should be required to be offered on top of omnibus indirect accounts allowing such netting. That mechanism allows foridentifying, in a way equivalent to individually segregated accounts, between the collateral and the positions held for the account of a specific indirect client, on the one hand, and the collateral and the positions held for the account of the client or other indirect clients on the other.

(6)

In addition, even if assets and positions held in a gross omnibus account structure for indirect clearing arrangements may still be exposed to the losses of another indirect client since those assets and positions are comingled in one account, the speed in which those assets and positions can be identified where necessary to liquidate them following a default, contributes to minimise that potential loss.

(7)

That mechanism allows, at the same time, for a much simpler account structure that reduces the costs and complexity compared to individually segregated accounts while permitting to distinguish the collateral and the positions of different indirect clients and thus ensures a level of protection that is equivalent to the level of protection offered by an individually segregated account. Requiring the offer of gross omnibus indirect accounts should however not preclude the possibility of offering individually segregated indirect accounts to indirect clients within clearing arrangements consisting of a CCP, a clearing member, a client and a single layer of indirect clients.

(8)

To facilitate access to central clearing, by rationalising clearing services and simplifying the commercial relationships between clearing members, clients and indirect clients, some groups offer clearing services using two entities from the same group which intermediate in the provision of those services. For similar reasons, the group of the client sometimes uses one entity to deal directly with the clearing member and a different entity to deal directly with the indirect client, typically because that second entity is established in the jurisdiction of the indirect client. In those cases, clearing services are rationalised across different economic activities of the group and the commercial relationship between clearing members, clients and indirect clients is also simplified. Provided that those types of arrangements meet specific conditions which ensure that counterparty risk is not increased and that an appropriate level of protection is provided to the indirect clearing, they should be allowed.

(9)

In chains of indirect clearing involving more than a CCP, a clearing member, a client and a single layer of indirect clients, the use of individually segregated accounts could lead to unexpected technical difficulties since the potential default of one or more of the counterparties in that chain and a multitude of individually segregated accounts would have to be managed. The offering of individually segregated accounts in those longer chains could mislead counterparties seeking the level of protection normally associated with individually segregated accounts since that level of protection may not be achieved in some of those longer chains. To avoid the risks stemming from that false assumption, only omnibus segregated accounts should be allowed to be used in those longer chains of indirect clearing, provided that counterparties that are clearing through those arrangements are fully informed of the level of segregation and the risks associated with that type of account.

(10)

To ensure that the amount of margin called within a gross omnibus indirect account structure is the same as the amount that would have been called if an individually segregated indirect clearing account had been used, a CCP should receive information on the positions held for the account of the indirect client to calculate the associated margin call on an indirect client by indirect client basis.

(11)

To ensure equivalence with client clearing, a clearing member should have procedures in place to facilitate the transfer of indirect clients' positions to an alternative client following the failure of a client that provides indirect clearing services. For the same reason, a clearing member should also have procedures to liquidate the positions and assets of the indirect clients and to return the liquidation proceeds to those indirect clients where known. Where, for any reason, the liquidation proceeds cannot be returned directly to the indirect clients concerned, the liquidation proceeds should be returned to the defaulting client for the account of its indirect clients.

(12)

Procedures should be put in place so that, in case of the default of the client, the information on the identity of the indirect clients can become known and the clearing member is able to identify which assets and positions belong to which indirect client.

(13)

A client providing indirect clearing services should present the indirect client with a choice of account structures. It is however possible that an indirect client has not instructed a client of its choice within a reasonable period of time. In that case, that client should be able to provide indirect clearing services to that indirect client by using any account structure, provided that the client informs the indirect client of the account structure used, the risks associated to that account and its level of segregation, and the possibility to change the account structure at any time.

(14)

Indirect clearing arrangements may give rise to specific risks. It is therefore necessary that all the parties participating in indirect clearing arrangements, including clearing members and CCPs, identify, monitor and manage any material risks arising from those arrangements on an ongoing basis. Appropriate sharing of information between clients and clearing members is especially important for those purposes. Clearing members should however ensure that that information is only used for risk management and margining purposes and that commercially sensitive information is not misused.

(15)

For reasons of consistency and in order to ensure the smooth functioning of the financial markets, it is necessary that the provisions of this Regulation and the relevant provisions of Regulation (EU) No 600/2014 apply from the same date.

(16)

This Regulation is based on the draft regulatory technical standards submitted by the European Securities and Markets Authority (ESMA) to the Commission.

(17)

In accordance with Article 10 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (4), ESMA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the opinion of the Securities and Markets Stakeholder Group established by Article 37 of Regulation (EU) No 1095/2010,

(a)

‘client’ means a client as defined in Article 2(15) of Regulation (EU) No 648/2012;

(b)

‘indirect client’ means a client of a client as defined in point (a);

(c)

‘indirect clearing arrangements’ means the set of contractual relationships between providers and recipients of indirect clearing services provided by a client, an indirect client or a second indirect client;

(d)

‘second indirect client’ means a client of an indirect client as defined in point (b);

(e)

‘third indirect client’ means a client of a second indirect client as defined in point (d).

(a)

the client is an authorised credit institution or investment firm or an entity established in a third country that would be considered to be a credit institution or investment firm if that entity were established in the Union;

(b)

the client provides indirect clearing services on reasonable commercial terms and publicly discloses the general terms and conditions under which it provides those services;

(c)

the clearing member has agreed to the general terms and conditions referred to in point (b) of this paragraph.

(a)

the general terms and conditions referred to in paragraph 1(b);

(b)

the client's commitment to honour all obligations of the indirect client towards the clearing member with regard to the transactions covered by the indirect clearing arrangement.

(a)

an omnibus account with the assets and positions held by that client for the account of its indirect clients;

(b)

an omnibus account with the assets and positions held by that client for the account of its indirect clients, in which the clearing member shall ensure that the positions of an indirect client do not offset the positions of another indirect client and that the assets of an indirect client cannot be used to cover the positions of another indirect client.

(a)

a segregated account for the exclusive purpose of holding the assets and positions of indirect clients held by the clearing member in an account as referred to in paragraph 2(a);

(b)

a segregated account for the exclusive purpose of holding the assets and positions of indirect clients of each client held by the clearing member in an account as referred to in paragraph 2(b).

(a)

ensure that the procedures referred to in paragraph 5 allow for the prompt liquidation of those assets and positions following the default of a client, including the liquidation of those assets and positions at the level of the CCP, and include a detailed procedure to communicate to the indirect clients the default of the client and the expected period of time to liquidate the assets and positions of those indirect clients;

(b)

after the completion of the default management process for the default of a client, readily return to that client, for the account of the indirect clients, any balance owed from the liquidation of those assets and positions.

(a)

include in the procedures referred to in paragraph 5:

(b)

contractually commit itself to trigger the procedures for the transfer of the assets and positions held by a defaulting client for the account of its indirect clients to another client or clearing member that has been designated by the relevant indirect clients of the defaulting client at the request of those indirect clients and without obtaining the consent of the defaulting client. That other client or clearing member shall be obliged to accept those assets and positions only where that other client or clearing member has previously entered into a contractual relationship with those relevant indirect clients committing to do so;

(c)

ensure that the procedures referred to in paragraph 5 allow for the prompt liquidation of those assets and positions following the default of a client, including the liquidation of those assets and positions at the level of the CCP, in case the transfer referred to in point (b) has not taken place for any reason within a predefined transfer period specified in the indirect clearing arrangement;

(d)

following the liquidation of those assets and positions, contractually commit itself to trigger the procedures for the payment of the liquidation proceeds to each of the indirect clients;

(e)

where the clearing member has not been able to identify the indirect clients or to complete the payment of the liquidation proceeds referred to in point (d) to each of the indirect clients, readily return to the client for the account of the indirect clients any balance owed from the liquidation of those assets and positions.

(a)

the indirect client is an authorised credit institution or investment firm or an entity established in a third country that would be considered to be a credit institution or investment firm if that entity were established in the Union;

(b)

the indirect client and the second indirect client conclude, in writing, an indirect clearing arrangement. The indirect clearing arrangement shall include at least the following contractual terms:

(c)

the assets and positions of the second indirect client are held by the clearing member in an account as referred to in Article 4(2)(a).

(a)

the clearing member and the client are part of the same group, but the indirect client is not part of that group;

(b)

the client and the indirect client are part of the same group, but neither the clearing member nor the second indirect client is part of that group.

(a)

Articles 4(1), 4(5), 4(6) and 4(8) shall apply to the client as if that client were a clearing member;

(b)

Articles 2(1)(b), 5(2), 5(3), 5(6), 5(8) and 5(9) shall apply to the indirect client as if that indirect client were a client.

(a)

Articles 4(5) and 4(6) shall apply to the client as if that client were a clearing member;

(b)

Articles 2(1)(b), 5(2), 5(3), 5(6), 5(8) and 5(9) shall apply to the indirect client as if that indirect client were a client.

(a)

the indirect client and the second indirect client are authorised credit institutions or investment firms or entities established in a third country that would be considered to be a credit institution or an investment firm if those entities were established in the Union;

(b)

the clearing member and the client are part of the same group, but the indirect client is not part of that group;

(c)

the indirect client and the second indirect client are part of the same group, but the third indirect client is not part of that group;

(d)

the second indirect client and the third indirect client conclude, in writing, an indirect clearing arrangement. The indirect clearing arrangement shall include at least the following contractual terms:

(e)

the assets and positions of the third indirect client are held by the clearing member in an account as referred to in Article 4(2)(a).

(a)

Articles 4(1), 4(5), 4(6) and 4(8) shall apply to both the client and to the indirect client as if they were clearing members;

(b)

Articles 2(1)(b), 5(2), 5(3), 5(6), 5(8) and 5(9) shall apply to both the indirect client and the second indirect client as if they were clients.