New guidance on managing conflicts of interest at central counterparties (CCPs) aims to clarify how these organizations should prevent, or mitigate, the risks of conflicts of interest that may arise.
The guidance, published Wednesday by the European Securities and Markets Authority (ESMA), stresses that CCPs should consider potential conflicts in various relationships — including between a CCP, broker dealers, and their clients — as well as possible conflicts with trading venues, related firms, data providers, payment and securities settlement systems, securities depositories, and trade repositories.
It also specifies the sorts of processes and procedures that should be established to address conflicts, including situations where a CCP is part of a larger group structure.
Under European rules for market infrastructure firms, CCPs are required to implement organizational arrangements, and to adopt policies, to prevent potential conflicts of interest, and to resolve conflicts in cases where preventive measures are not adequate.
ESMA’s guidance, which is intended to ensure a level playing field throughout the region, was developed following a public consultation.