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Emir Changes Could Raise Systemic Risk 

May 8, 2017

Shanny Basar, Markets Media

The lifting of derivatives clearing obligations for smaller financial companies, pensions, and non-financial companies in the European Union could push them into default in times of extreme market stress and increase systemic risk according to consultancy Sapient Global Markets.

Valdis Dombrovskis, vice president in charge of financial services at European Commission, said in a speech yesterday that it is proposing some changes to the European Market Infrastructure Regulation, which covers central clearing.

Since the financial crisis, regulators have been trying to improve transparency for over-the-counter derivatives and the European Market Infrastructure Regulation came into effect in 2012. Emir mandated central clearing of certain OTC derivatives to reduce the risk of default, and introduced mandatory reporting of both OTC and exchange-traded derivatives. As a result, the share of centrally cleared interest rate OTC derivatives rose from 36% to 60% according to Dombrovskis. He said: “Emir is doing well overall. However, there is room for targeted adjustments to make it more proportionate and efficient.”

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