ESMA, RBI negotiating to resolve domestic bond trading platform discrepancies
The European Securities and Markets Authority (ESMA) is currently in discussions with the Reserve Bank of India (RBI) to settle differences regarding the domestic bond trading platform. An ESMA representative shared with The Economic Times, "ESMA is currently in negotiations with RBI regarding a potential EMIR (European Market Infrastructure Regulation)-compliant MoU (Memorandum of Understanding)."
Dispute over Clearing Corporation of India
This disagreement centers around the Clearing Corporation of India (CCIL), an organization overseen by the RBI that operates the platform for trading domestic government bonds. In October 2022, ESMA withdrew recognition of CCIL because the RBI did not allow audit and inspection rights over the local clearing house, which serves as the official counterparty for billions of dollars in government bond transactions.
European banks are facing higher capital requirements
As a result of ESMA's decision, European banks such as Deutsche Bank, BNP Paribas, Societe Generale, and Credit Agricole now face increased capital requirements. The ESMA spokesperson explained, "There are no penal charges (on European banks trading in India) but rather higher capital requirements. Please note that ESMA is not the prudential supervisor of European banks." These banks participate in trading Indian government bonds and interest rate derivatives, which necessitate counterparty services provided by CCIL.
