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July 28, 2014

Front Loading ESMA | Part 2

Next step from ESMA and European Commission on front-loading

Those of you following the topic of "front loading" will be aware that this remains a source of annoyance and confusion for the market. An explanation of the issue is on a previous article here, and in summary is a requirement from the European Commission that trades executed after a CCP is authorised under EMIR, and that date on which mandatory clearing starts, should be back-loaded. ESMA wrote a letter to the European Commission explaining why this now causes a pricing problem for banks, not knowing whether a trade executed now should be priced as-if cleared or at the usual bi-lateral price point. The European Commission have now responded in a way that moves the ball forward but doesn't knock it into the net, quite yet.

You can read the letter on the ESMA website here, the gist of which is that ESMA should invent a threshold of remaining maturity to exclude Swaps from front-loading and puts the ball back in the ESMA court to play.


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