RTS26 – Post-Trading Issues
RTS26 covers some areas which impact clearing and are aimed at providing counterparties with certainty of clearing as soon as possible, i.e. determining at an early stage whether a transaction can be cleared by the CCP.
Article 2 specifies that for cleared derivative transactions executed on a trading venue, the trading venue shall provide tools to ensure pre-execution screening by each clearing member of limits set for its clients. However, this rule does not apply if the rules of the trading venue and CCP provide for certainty of clearing, inter alia that transactions executed at the trading venue must be cleared automatically and immediately.
Nasdaq is of the opinion that certainty of clearing is achieved for Nasdaq Clearing and its closely integrated derivatives trading venues – Nasdaq Derivatives Markets and Nasdaq Commodities – and we currently work on the assumption that there will be no need for pre-execution screening.
Timeframes for the Transfer of Information
Transactions executed on Nasdaq Derivatives Markets and Nasdaq Commodities: Article 3 includes the requirement that the CCP shall accept or not accept the clearing of a cleared transaction executed on a trading venue within 10 seconds from receiving the information from the trading venue and inform the clearing member and the trading venue of a non-acceptance on a real time basis. Article 3 does not apply if there is certainty of clearing as described above.
The rules of Nasdaq Clearing and its closely integrated trading venues provide for certainty of clearing and transactions are sent through to clearing on a real-time basis. Nasdaq is therefore of the opinion that Article 3 does not apply to Nasdaq Clearing.
Transactions executed on a bilateral basis: Article 4 includes the requirement that the CCP shall send to its clearing member certain information related to the transaction within 60 seconds of receiving the information from the counterparties in the original trade. The article further requires the CCP to accept or not accept the clearing of a bilateral trade within 10 seconds from the receipt of the clearing member’s acceptance or non-acceptance.
Nasdaq Clearing provides information in real-time on received bilateral transactions via the protocols OMnet API and FIX as well as via its proprietary user interfaces Clearing Workstation and Trading Workstation. For OTC rates trades the information is also sent to MarkitWire in real-time.
For some bilaterally traded contracts, Nasdaq Clearing uses pre-novation checks in order to ensure that sufficient collateral has been posted to the CCP before accepting the trade for clearing. The pre-novation check is done in real-time and if there is sufficient collateral at the CCP, the trade is accepted for clearing and information to this effect is immediately passed back to the clearing member through the various channels. If there is insufficient collateral at the CCP, Nasdaq Clearing currently places the trade in a “pending” state and the trade is accepted for clearing as soon as sufficient collateral has been posted. The functionality around the “pending” state will be removed ahead of January 2018 and trades with insufficient collateral will be immediately rejected.
Nasdaq Clearing will update its Rules & Regulations ahead of January 2018 in order to reflect the above.
RTS – Indirect Clearing
Indirect Clearing deals with the protection of clients further down the clearing chain, i.e. clients that have a contractual relationship with a client of a clearing member which enables the first client to clear its transactions with a CCP. Both EMIR and MiFID include provisions around Indirect Clearing and ESMA is working to develop Regulatory Technical Standards (RTS) that are aligned between the two regulations.