With volatility a constant market presence in recent years, and expected to be for the foreseeable future, regulators need to ensure that firms can access liquidity in the face of stress, panellists at this year’s International Derivative Expo conference agreed.
Transparency is key, affirmed Hester Serafini, president of ICE Clear Europe, allowing markets to manage liquidity to the best of their ability and work through crises. A number of solutions have emerged from different forums, she noted, and both regulators and market participants need to determine which will make the most measurable difference. To do so, the industry needs to take a step back and consider what has driven recent big liquidity demands and challenges, she suggested.
Considering EMIR 3.0, Matthias Graulich, member of the executive board of Eurex Clearing, stated that Eurex is “very supportive” of the regulation’s margin transparency element. He advised that requirements should be proportionate and focus on challenges around variation rather than initial margin, advocating for global convergence and a level playing field in this space.
The level one text requires tweaks, Graulich continued, and with ratification and implementation processes yet to come it will be another four to five months before the regulation is ready to go. What has been published so far, however, shows a clear direction of travel, and further clarity is expected to arrive in due course.
“I encourage everyone to start preparing now; don’t wait until two weeks before the deadline, because if everyone rushes to the door, we have a problem,” he added.
On EMIR 3.0’s approach to active accounts, “we think they’ve gone about this in an unfortunate way”, said Serafini. “This policy is just forcing things; it hasn’t had a great reception.” She went on to opine that the policy will not achieve its goals here, instead disadvantaging some EU firms who will have to trade in less liquid markets while the rest of the world carries on as usual.
During an audience poll, the biggest risk to CCPs was determined to be cyber attacks. It’s important that the industry responds to each development in the cyber world, said Anthony Attia, global head of derivatives and post-trade at Euronext, adding that this is why core critical systems are not being put into the cloud; it adds risk.
“A cyber attack is not unique in the CCP space,” stated Lee Betsill, managing director and chief risk officer at CME Group, but could impact the entirety of the global financial system – and beyond. However, while cyber threats are certainly a danger, he went on to confirm that there has been significant development in this space over recent years, with resources allocated to cybersecurity.
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