ESMA consultation paper- Clearing obligation under EMIR (no.1)

26 August 2014

Letter to European Securities and Markts Authority 18 August 2014

We refer to your 11 July 2014 invitation to comment on the Consultation Paper on the Clearing Obligation under EMIR (no. 1) (‘Consultation Paper’). We appreciate the opportunity to participate and provide comments to the European Securities and Markets Authority (‘ESMA’).

Norges Bank Investment Management is the investment management division of the Norwegian Central Bank (‘Norges Bank’) and is responsible for investing the Norwegian Government Pension Fund Global (the ‘fund’). The fund is invested in assets of about NOK 5,500 billion (EUR 650 billion) of which approximately EUR 240 billion is invested in European listed equities and euro-denominated bonds. The fund currently has limited investments in over-the-counter (‘OTC’) derivatives.

As a global investor in financial markets we are concerned about systemic risk in the financial system. In our view, an important aspect of financial market regulation is the mitigation of systemic risk and its contributing factors.  One such factor is counterparty risk.  We support ESMA’s efforts to regulate these markets and the trading of OTC derivatives. We intend to mitigate our exposure to counterparty risk further by clearing our interest rate derivatives through central clearing on a voluntary basis.  Accordingly, we are interested in contributing our views regarding ESMA’s consultation.

Our detailed responses to the Consultation Paper questions are set out in the appendix to this letter. In addition, we would like to make the following overall comments:

  • We support the objective of reducing systemic risk through central clearing of certain OTC derivatives. Central clearing of OTC derivatives can reduce complexity in financial markets, reduce counterparty risk between institutions, and increase transparency, each of which reduces systemic risk in the financial system. For this reason, we agree with the majority of the proposals set out in the Consultation Paper and the overall developments therein.
  • We believe that regulation of financial markets should be targeted and harmonized across jurisdictions, to the extent feasible. We believe adequate regulation requires monitoring and enforcement, yet exemption should be granted where the regulation is ineffective, creates inefficiencies, or unwanted costs. We therefore support ESMA’s proposal that derivatives related to covered bonds are exempted from the clearing obligation.  However, the suggested conditions for the exemption of derivatives related to covered bonds seem unnecessarily complex. We recommend you consider how these conditions can be simplified, reduced or eliminated.

Once again, thank you for providing us with an opportunity to contribute our views.

Yours sincerely

Ole Christian Frøseth                                    William Ambrose
Global Head of Fixed Income                     Global Head of Business Risk

Appendix: Copy of consultation reply form, as submitted on ESMA’s web portal on 18.08.2014

Download the submission (PDF)