Thousands of firms across Europe face being shut out of
clearing markets because of high minimum commissions, a report
A report by ISDA into the impact of the Esma clearing
mandate has found that smaller financial end users of swaps in
the European Union are facing annual fees of between $100,000
and $280,000 to clear their positions.
The fees relate to the minimum charges clearing providers
are imposing on clients, which stem from the high capital
allocation that the Basel III leverage ratio imposes on banks
providing clearing for OTC derivatives.
In the US, smaller financial end users with assets of less
than $10bn are exempt from the Dodd-Frank clearing mandate
meaning that only 120 of the 14,700 such financial institutions
are required to clear.
However, there is no such exemption in the European Union
where up to 5,521 firms could be caught under the mandate
according to Esma estimates.
ISDA found that transaction fees for a $100m cleared trade
range from between $5,750 to $11,500 meaning that firms would
be required to trade $100m notional roughly twice a month in
order to meet the minimum fee requirements.
The rules also risk increasing concentration risk with firms
reporting to ISDA that they were unable to secure agreements
with back-up clearing firms and the provision of clearing
services is restricted to the largest banks.
In July, Esma published a consultation paper on proposals to
delay clearing for smaller financial end users by two
However, it is clear that unless the Basel III requirements
are changed, there will be no solution to the challenge facing
these firms in meeting the clearing mandate.
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