European Securities and Markets Authority (ESMA)

About:

• Once the derecognition comes into effect, the six clearing houses will not be able to provide services to clearing members and trading venues established in the European Union.
• The six institutions in ESMA’s list are The Clearing Corporation of India (CCIL), Indian Clearing Corporation (ICCL), Multi Commodity Exchange Clearing (MCXCCL), NSE Clearing (NSCCL), India International Clearing Corporation (IFSC) (IICC) and NSE IFSC Clearing Corporation (NICCL).
  • Amongst the six institutions, CCIL is supervised by the RBI; ICCL, MCXCCL, and NSCCL are supervised by SEBI; IICC and NICCL are supervised by the International Financial Services Centre Authority (IFSCA).
• Reason for derecognition: Essentially, the European regulators want to scrutinize the clearing parties or the European banks in India. But the Indian financial regulators such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) believe that this is a jurisdictional overreach.

What is ESMA?

• It is an independent European Union (EU) Authority that contributes to safeguarding the stability of the EU's financial system by enhancing the protection of investors and promoting stable and orderly financial markets.
• Whilst ESMA is an independent Authority, it is accountable to the European Institutions including the European Parliament, where it appears before the Economic and Monetary Affairs Committee (ECON) at their request for formal hearings, the Council of the European Union and European Commission.
• ESMA achieves its mission and objectives through four activities:
  • Assessing risks to investors, markets and financial stability;
  • Completing a single rulebook for EU financial markets;
  • Promoting supervisory convergence; and
  • Directly supervising specific financial entities.
• ESMA is the direct supervisor of specific financial entities:
  • Credit Rating Agencies (CRAs)
  • Securitisation repositories (SRs)
  • Trade Repositories (TRs)