The London Metal Exchange’s (LME) clearing and settlement division, LME Clear, has been approved by European regulatory authorities as a Central Counterparty, the firm joining the growing list of firms. LME Clear became the twelfth firm to gain membership.
The move highlights ESMA’s commitment to ensuring global financial markets operate in an efficient and transparent manner. LME Clear also reported that it will launch later this month after receiving approval from the UK’s central bank.
Regulations in financial markets have been changing across developed markets after governments and leaders outlined OTC derivatives transactions as the culprit behind the downfall of the economy six years ago.
Amendments to rules and guidelines have been drawn from the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions (CPSS-IOSCO Principles), an organisation that serves as a global benchmark for regulatory requirements for central counterparties (CCPs).
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“This is exciting news for LME Clear. Authorisation means that our risk management framework, governance, capital, client account structures and operating model all meet the high standards required under EMIR,” said Trevor Spanner, CEO of LME Clear, in a statement.
The pre and post-trade obligations of OTC derivatives came into question during the 2008 recession. LME Clear will offer a number of mechanisms that aim to reduce risks associated with transactions.
Prior to clearing trades, the firm’s matching portal, LMEsmart, will match all trades to confirm details of the trades. LME Clear, which replaces LCH Clearnet at the global metal exchange will then engage in the process of registration and novation.
LME Clear enhances the Hong Kong-owned venues position as a multi-asset, multi-lateral provider of financial services to participants.
Charles Li, HKEx Chief Executive, added: “Authorisation is a key step towards launch. LME Clear gives us greater control of our destiny – particularly with regard to the speed and flexibility of product launches.”