BNY Mellon derivatives blames clearing exit on Emir delays

Bank of New York Mellon’s (BNY Mellon) plans to close its European derivatives clearing business are a direct consequence of the delays in the implementation of the European Market Infrastructure Regulation (Emir), it says.

A BNY Mellon spokesperson told SRP, that specifically, Emir mandatory clearing “has been pushed back to late 2015/early 2016, delaying the expected expansion of the OTC clearing business, which was a key element of our derivatives clearing strategy."

BNY Mellon had closed its US derivatives clearing business last December for regulatory and financial reasons. The firm said at the time that the New York business was not profitable but that it remained committed to its derivatives clearing business in Germany, as it was a “core business”.

As a result of the wind-down of its European clearing business, the bank will no longer offer derivatives clearing. “After careful consideration, BNY Mellon has decided to exit the European derivatives clearing business,” said the spokesperson. “We have taken the view that market and regulatory factors will limit our ability to grow the business in the future.”

Emir, which would require OTC derivatives to be cleared through central counterparties clearing houses (CCP), was on track to come into force at the beginning of 2015 with banks and custodians investing in their back-office capabilities to make sure they would comply with the new rules. But the European Securities and Markets Authority (Esma) sent a letter on August 6 last year to the European Commission (EC) seeking to postpone the rules for derivatives executed on regulated markets, also known as exchange-traded derivatives (ETD).

BNY Mellon is the latest major clearing member in Europe to exit swaps clearing after Royal Bank of Scotland in May closed down prime broking and parts of its OTC interest-rates derivatives business due to rising regulatory costs which took away the division’s profitability.

A source at an investment bank who wished to remain anonymous told SRP that the Markets in Financial Instruments Directive (Mifid II) rules could also add strains to OTC derivatives clearing businesses.

“Emir reporting requirements apply to all derivative trades, but firms already report derivative transactions under Mifid obligations,” he said. “The Mifid and Emir regimes have different criteria for identifying the counterparty to a derivative transaction, and that has raised some technical issues that need to be harmonised.”

BNY Mellon’s European derivatives clearing business, said the spokesperson, will be liquidated over the next several months. “We are fully committed to providing an orderly wind-down process for clients so they can transition their activity to other providers in the market,” he said.

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BNY Mellon derivatives blames clearing exit on Emir delays