The European Commission has proposed steps to make EU clearing services more appealing in order to advance the EU's Capital Markets Union (CMU).
Central counterparties will be able to develop their products more swiftly under the plans, and improved supervisory procedures will be implemented to enable for a more resilient clearing system.
The Commission is attempting to reduce its reliance on London-based market infrastructure to clear derivative trades by reducing red tape.
Improved openness on margin calls will give market participants better foresight in projecting developments, according to a statement from the European Commission.
The plan will also minimise EU market players' exposure to central counterparty clearing (CCP) in third countries, particularly the United Kingdom, for derivatives recognised as significantly systemic by the European Securities and Markets Authority (ESMA).
All relevant market players will be required to maintain active accounts at EU CCPs for clearing at least a portion of certain derivative contracts under the new rules. Those who continue to use London-based services will be subject to capital charges.
According to the European Commission, the move will strengthen the management of financial stability risks across the EU.
Certain corporate insolvency regulations will be harmonised across the EU, making them more efficient and encouraging cross-border investment, while a new Listing Act will decrease the administrative burden on businesses.
According to the Commission, a well-functioning CMU requires safe, robust, and appealing clearing. "If clearing does not function efficiently, financial institutions, companies and investors face more risks and higher costs – as the 2008 financial crisis showed," it stated.
The Commission is reducing red tape as it strives to reduce its reliance on London-based market infrastructure to clear derivative contracts.
The plan, according to Commissioner Didier Reynders, would eliminate disparities within insolvency regimes.
"Not only does this situation cause legal uncertainty and hinder investments across EU borders, it also leads to excessive recovery times and high judicial costs.
"The new rules will ensure a level playing field - supporting investors, promoting free capital movement and strengthening the market by laying down common safeguards and standards fit for the digital age," he said.
Thomas Richter, CEO of the German Investment Funds Association BVI, praised the package, saying it is encouraging that the Commission is attempting to minimise asset managers' reliance on clearing houses in post-Brexit London.
He said: "We welcome measures that facilitate the process of transition for market participants, such as setting up active accounts with clearing houses in the EU.
"The Commission should not give up its aim of moving euro clearing to the EU. This would ensure that the clearing of OTC derivatives takes place within the required EU framework and result in improved investor protection," he added.
By fLEXI tEAM