The draft EU law on derivatives released yesterday outlines who will regulate central counterparty clearing houses and how they will be regulated, but further clarification will be needed.
The approach to deciding what will be cleared mirrors that proposed in the consultation paper. There will be two methods: bottom-up and top-down.
The bottom-up approach would involve a CCP deciding to clear contracts and having this approved by an authority. When the CCP had had the contracts approved, the authority would have to inform the new European Securities Markets Authority (Esma), which would...