Mandatory Clearing of OTC Interest Rate Swaps a Step Closer in the EU

The European Commission announced that it had adopted legislation which, once it comes into force, will make it mandatory to clear certain OTC interest rate swaps through CCPs. The obligation will apply to fixed-to-float IRS, known as plain vanilla IRS derivatives, float-to-float swaps, known as basis swaps, forward rate agreements and overnight index swaps which are denominated in euro, pounds sterling, Japanese yen or US dollars. The legislation is now subject to scrutiny by the European Parliament and the Council of the European Union. Mandatory clearing of these derivatives contracts represents the first mandatory clearing obligation under the European Market Infrastructure Regulation. It is expected that the European Securities and Markets Authority will in the near future propose mandatory clearing obligations for other types of OTC derivatives.

View the announcement.

View the Shearman & Sterling client note, "EU Clearing Obligation for Interest Rate Swaps Looms".