SEBI and ESMA sign MoU on CCP oversight in India and EU; Replaces 2017 MoU to reflect EMIR amendments.

Memorandum of Understanding ESMA-SEBI - CCPs

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Memorandum of Understanding between The Securities and Exchange Board of India (SEBI) and European Securities and Markets Authority (ESMA) The Securities and Exchange Board of India, as established by the Securities and Exchange Board of India Act, 1992. AND ESMA, EU’s financial markets regulator and supervisor, contributing to the stability and effectiveness of the financial system; promoting fair and orderly functioning of financial markets and effective and consistent level of regulation and supervision; preventing regulatory arbitrage and promoting equal conditions of competition; ensuring risks are appropriately regulated and supervised; enhancing customer and investor protection; as set out in Regulation (EU) No 1095/20101 (‘ESMA Regulation’).

Whereas:

  1. SEBI and ESMA had previously entered into a “Memorandum of Understanding Related to ESMA’s Monitoring of the Ongoing Compliance with Recognition Conditions by CCPs Established in India and supervised by the Securities and Exchange Board of India (June 21, 2017) (“2017 MoU”) in order to reflect Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories2 (“EMIR").
  2. The said Regulation underwent certain amendments including via Regulation (EU) 2019/20993 dated October 23, 2019.
  3. Following the above-mentioned amendments, the 2017 MoU has to be revised to reflect the current requirements under amended EMIR. Accordingly, the Parties hereto agree to replace the 2017 MoU with a new MoU which is in accordance with the requirements under the amended EMIR. In this context, this MoU confirms the interest of the parties to cooperate with each other. It is recognised that this MoU does not create any legally binding obligations upon SEBI or ESMA. This MoU is intended to replace the 2017 MoU to enable the signatories to fulfil their respective regulatory, supervisory, and/or oversight mandates, which for ESMA are defined by EMIR and the ESMA Regulation and for SEBI, the Securities and Exchange Board of India Act, 1992 (SEBI Act), the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 and

the regulations/directions/instructions/guidelines issued by SEBI under these statutes. 4. This MoU is an arrangement between SEBI and ESMA and not a collective arrangement with other EU authorities. As such, it will not impact any arrangements

1 Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC; OJ L 331, 15.12.2010, p. 84. 2 Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories; OJ L 201, 27.7.2012, p. 1. 3 Regulation (EU) 2019/2099 of the European Parliament and of the Council of 23 October 2019 amending Regulation (EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs; OJ L 322, 12.12.2019, p. 1.

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which may be agreed directly between other EU authorities and SEBI. Both SEBI and ESMA agree that the cooperation required under the MoU shall be applicable to both SEBI and ESMA, on equal footing on the lines of principle of reciprocity, and the cooperation requirements, applicable to SEBI under this cooperation arrangement shall also apply to ESMA, mutatis mutandis. 5. The European Commission has adopted the Commission Implementing Decision (EU) 2016/22694, dated December 15, 2016 (“Equivalence Decision”) determining that i) the legal and supervisory arrangements of India ensure that Covered CCPs comply on an ongoing basis with legally binding requirements which are equivalent to the requirements of EMIR, ii) Covered CCPs are subject to effective supervision and enforcement in India on an ongoing basis, and the legal framework of India for Covered CCPs provides for an effective equivalent system for the recognition of CCPs. 6. SEBI and ESMA have reached the following understanding, related to Central Counterparties (CCPs)

Article 1 Definitions For the purpose of this MoU, unless the context otherwise requires:

a) “Authority” means a signatory to this MoU or any successor thereto; b) “Books and Records” means documents, electronic media, and books and records within the possession, custody and control of, and other information about a CCP; c) “CCP” means a legal person that interposes itself between the counterparties to the contracts traded on one or more financial markets, becoming the buyer to every seller and the seller to every buyer; d) “Covered CCP” means a CCP established in India and authorized by SEBI that has applied or that may apply to ESMA for recognition as a third country CCP or such a CCP that is already recognized by ESMA as a third country CCP and has not been determined as systemically important or likely to become systemically important by ESMA in accordance with Article 25(2a) of EMIR (i.e. the CCP is a Tier 1 CCP); e) “Emergency Situation” means the occurrence of an event that could materially impair the financial or operational condition of a Covered CCP, which may have an adverse effect on market liquidity and the stability of the financial system in the EU or one of its Member States. f) “EMIR” means Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, as amended and supplemented; g) “ESCB” means the European System of Central Banks; h) “Governmental Entity” means:

4 Commission Implementing Decision (EU) 2016/2269 of 15 December 2016 on the equivalence of the regulatory framework for central counterparties in India in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council; OJ L 342, 16.12.2016, p. 38.

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i. For SEBI, the Government of India and the following authorities: I. Reserve Bank of India (RBI), II. International Financial Services Centers Authority (IFSCA) III. Insurance Regulatory and Development Authority of India (IRDAI), and IV. Pension Fund Regulatory and Development Authority (PFRDA). ii. For ESMA: I. the supervisory authorities of CCPs in the Member States in the European Union in which the Covered CCP provides or intends to provide clearing services, and which have been indicated by the Covered CCP in the application request; II. the competent authorities responsible for the supervision of the clearing members of the Covered CCP that are established in the three Member States of the European Union which make or are anticipated by the Covered CCP to make the largest contributions to the default fund of the Covered CCP referred to in Article 42 of EMIR on an aggregate basis over a one-year period; III. the competent authorities responsible for the supervision of trading platforms located in the European Union, served or to be served by the Covered CCP; IV. the competent authorities supervising CCPs established in the European Union with which the Covered CCP has established interoperability arrangements; V. the relevant members of the European System of Central Banks (ESCB) of the Member States, of the European Union, in which the Covered CCP provides or intends to provide clearing services and the relevant members of the ESCB responsible for the oversight of the CCPs established in the European Union with which the Covered CCP has established interoperability arrangements; VI. The central bank(s) of issue (“CBI”) of any of the EU currencies of the financial instruments cleared or to be cleared by the Covered CCP; VII. each of the members, except for the chair and the two independent members who are staff of ESMA, of the EU third-country CCP college5 in their legal capacity as members of the college and for purposes of their college responsibilities with regard to a Covered CCP. i) “Laws and Regulations” means, in relation to ESMA, applicable European Union legislation within ESMA’s scope of action as set out in Article 1(2) of Regulation (EU) No. 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC (“ESMA Regulation”) and, in relation to SEBI, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 and the regulations/directions/instructions/guidelines issued by SEBI under these statutes and other legal requirements in India, as may be applicable. j) “Person” includes a natural person, unincorporated association, partnership, trust, investment company or corporation and may be a Covered CCP; k) “Requested Authority” means the Authority to whom a request is made under this MoU; l) “Requesting Authority” means the Authority making a request under this MoU;

5 The EU third-country CCP college is composed of the supervisory authorities of EU CCPs, the competent authorities of EU clearing members, EU trading platforms served or to be served by the CCPs, the competent authorities of CSDs

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m) “other Authority” means for SEBI, ESMA and for ESMA, SEBI; n) “Tier 1” CCP means a CCP that is not a Tier 2 CCP; o) “Tier 2” CCP means a CCP that is determined by ESMA to be systemically important or likely to become systemically important for the financial stability of the Union or of one or more of its Member States;

Article 2 General provisions 1. With respect to Covered CCPs, the Authorities affirm a commitment to cooperate in the context of one another’s regulatory regime and supervisory practices to the greatest extent appropriate and permitted by applicable Laws and Regulations. In the fulfilment of its responsibilities and objectives, ESMA will rely as appropriate upon the regulatory framework and supervision of SEBI, recognising that SEBI remains accountable in India for the resilience of the Covered CCPs under its supervision. 2. This MoU is a statement of intent of ESMA and SEBI to consult, cooperate and exchange information with each other with regard to the Covered CCPs and in connection with ESMA’s monitoring of the on-going compliance by the Covered CCPs with the recognition conditions 3. This MoU does not create any legally binding obligations, confer any rights or supersede any domestic laws. 4. The Authorities should, within the framework of this MoU, cooperate with each other to the extent permissible under the respective jurisdictions’ Laws and Regulations. Following notification, cooperation may be denied: a) Where the cooperation would require an Authority to act in a manner that would violate its Laws and Regulations; or

b) Where a request for cooperation could contradict the regulatory powers and responsibilities of an Authority; or c) On grounds of public and / or national interest. 5. The Authorities represent that, to the best of their knowledge, as of the date of the signature of this MoU no domestic laws or regulations should prevent them from providing assistance to one another.

  1. The Authorities will endeavour to reach an understanding on the interpretation and application of this MoU. Where the Authorities encounter material differences of views related to the interpretation of a provision of this MoU, they should endeavour to make