EU Banks May Have to Quit India’s Capital Markets
(16 February 2023 – India) EU banks have warned they will be forced to leave India’s capital markets unless regulators can settle a dispute over traders’ access to the country’s booming securities and derivatives markets.
Industry figures are becoming increasingly concerned that the stand-off between EU and Indian regulators will not be resolved ahead of an April 30 deadline, leaving EU lenders little choice but to exit from trading in the country over the coming months, until they can find a workaround that would probably shrink their businesses.
The dispute originated with an announcement by the European Securities and Markets Authority (Esma) last October that it would no longer legally recognise India’s six main clearing houses (CCPs) because, it said, its existing accord with local authorities was inadequate.
A clearing house stands between two parties in a trade, insulating the market from contagion if there is a default.
Esma said it would defer withdrawing legal recognition for six months to resolve the impasse.
India’s stock and government bond markets are valued at about $3tn and $1tn respectively, and its derivatives market is among the most active in the world, making the three markets lucrative for western lenders.
Bankers and trade bodies said that last year Esma began pushing Indian regulators to sign a revised deal that would give the Paris-based agency more direct oversight of six Indian clearing houses that EU banks use to process market transactions in India.
The Reserve Bank of India reportedly balked at the new agreement.
Banks are particularly worried about access to derivatives clearing, as it would take time and planning to unwind thousands of open contracts. The industry groups estimated that EU, UK and Swiss financial institutions accounted for more than 60 per cent of derivatives cleared on CCIL, India’s largest clearing house.
“We are at the moment where banks have to make a decision as to the future of their clearing activities in India, and they will have to make it within the next few weeks,” said the Asia head of one industry body behind the letter.
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