BNR: "The delays of the Central Counterparties project are not related to the authorities involved in the authorization process"

The delays arising from the initial planning of CCP.RO Bucharest, an entity intended to function as a central counterparty in our country, are not related to the authorities involved in the authorization process, the National Bank of Romania (BNR) sent at the request of the BURSA newspaper.

The central counterparty project was approved by the shareholders of the Bucharest Stock Exchange (BVB) in January 2019, and according to the original business plan, the CCP was supposed to be ready in 2020. There were a number of delays, so CCP.RO did not has so far received authorization to operate as a central counterparty in our country from a college composed of the Financial Supervisory Authority (ASF), the BNR and the European Securities and Markets Authority (ESMA). At the end of April, BVB announced that there is a possibility that CCP.RO will not be operational this year either, and the operator of our capital market also assesses the need for a partial depreciation of the exchange's investment, which currently amounts to ten million euros.

"In order to declare the file complete for authorization, CCP.RO Bucharest SA must meet all the requirements of EMIR and the secondary legislation issued in application of the regulation, covering both the documentation and the functionality part. Moreover, we note that the extension of the authorization term was also due to the changes in the strategy of CCP.RO Bucharest SA, as a result of the need to call on another technical operator to ensure clearing services", the BNR also mentions.

The management of CCP.RO submitted to the Financial Supervision Authority the application for authorization of the file in January last year. Since it was not complete, the ASF requested the completion of the file within twelve months, a period which it then extended by another six months, according to the legal provisions.

The six months expire on September 8, by which time, if the management of CCP.RO does not complete the file necessary for the authorization of the central counterparty with the requests made by the authority, the market supervisor will have to reject the authorization request, as it appears from the provisions of the Regulation no. 3/2013 of the ASF.

The problem is that CCP.RO no longer has software for the settlement system, as mentioned in the BVB press release. "The authorization until the end of 2024 of CCP.RO Bucharest, as a central counterparty (...) is subject to potential risks induced by the necessity of the negotiations that will follow regarding the technology services for the technical administration of the managed clearing system operational by CCP.RO", BVB notified the market at the end of April.

The software, together with the consulting part for building the central counterparty, should have been provided by Euronext Clearing (formerly Cassa di Compensazione i Garanzia - CC&G) under a contract concluded in 2020 for seven years. But, according to some sources in the market, Euronext got out of the contract in April, so that now CCP.RO has to negotiate the contract for the delivery of the software with the company that made it, which is also part of the Euronext Group. Taken by surprise by this situation, the Financial Supervisory Authority requested the re-examination of the entire file of the central counterparty.

• A decision that upset the market

According to a source close to the situation, at the time Euronext announced its exit from the contract, CCP.RO was very close to the moment when the complete file would be submitted to the ASF.

"Even the night before Euronext announced the exit from the contract, we worked with them on some tests imposed by the BNR. It is clear that this information did not exist at the technical level at Euronext. As far as I know, there has been no signal with us on this subject. The decision shocked us all," our sources say. "Of course there were dissatisfactions, the subject was turned in all directions, some tried to look for culprits, but the decision was made to move forward".

Regarding the reasons why Euronext pulled out of the contract with CCP.RO, the sources said: "Euronext currently serves seven markets and it seems that it was a decision of the Board of Directors to focus only on them."

But other sources say that, for insiders, the exit from the contract should not come as a surprise, as there is a clause in the document that CC&G, which is now Euronext, can withdraw from the project under certain conditions. "In the background it seems that there was a problem related to the form of ownership of the software, because CCP would not have been the owner of the software, but would have been rented (...). Under these conditions, the CCP file would not have received authorization", say the sources.

According to them, a good part of the delay in the authorization of the central counterparty occurred because CCP.RO did not perform a series of system functionality tests, imposed by the BNR, on time.

• CCP.RO shareholders continue to support the project

Exiting the contract with CCP.RO does not mean that any connection between the two entities ends, but there is an exit plan, based on which Euronext makes recommendations so that CCP can benefit from the software. "It is not a standardized system, but an IT platform customized for our project", say the sources. According to them, depending on the commercial aspects, CCP.RO, with the approval of the shareholders, must conclude a contract that fulfills two requirements - one is related to operationalization, the day-to-day activity of the central counterparty, and another is related to further developments.

"CCP's business plan foresees the introduction of new products, which involves the development of the platform. However, this development can only be done with the supplier who knows the core of the software", says a person close to the situation.

Basically, it is about the same software that Euronext was originally supposed to deliver, but for which the management of CCP.RO is now negotiating with the manufacturer itself.

"All shareholders believe that this project must be supported. And CCP.RO is taking the necessary steps to continue the project with the adopted technical solution, which will have another commercial component and another execution component. The central counterparty is a very important piece without which the capital market and the energy market are not complete," the sources said.

• ASF: "The fulfillment of the authorization conditions is exclusively the responsibility of the CCP"

ASF şi BNR şi-au arătat susţinerea faţă de proiectul contrapărţii centrale, dar atrag atenţia că nu vor face vreo excepţie de la exigenţele cerinţelor de autorizare impuse de reglementările naţionale şi europene.

"ASF, alături de Banca Naţională a României, a sprijinit şi sprijină în continuare realizarea acestui demers, însă finalizarea lui nu se poate face fără îndeplinirea condiţiilor de autorizare, aspect aflat exclusiv în responsabilitatea CCP", se arată într-un comunicat al Autorităţii, publicat după o întâlnire la ASF de luna trecută, cu acţionarii CCP.RO. "Reprezentanţii ASF şi ai BNR, participanţi la întâlnire, au salutat poziţia acţionarilor, precizând totodată că cele două autorităţi vor sprijini realizarea proiectului în limita competenţelor acestora, fără însă a deroga de la exigenţele cerinţelor de autorizare impuse de reglementările naţionale şi europene. Implicarea fiecărui acţionar al CCP.RO şi eforturile comune ale conducerii executive a CCP.RO sunt esenţiale pentru finalizarea proiectului, în declararea dosarului complet şi finalizarea procesului de autorizare", se mai menţionează în comunicat.

• In the supporting documents related to this year's BVB budget, there is no mention of the need for negotiations for software

Delays in the central counterparty project have been a source of discontent among shareholders and other stakeholders for some time, which have intensified recently. "It is a very important project, and if it is not completed we will not have derivatives and millions of euros will be lost. More responsibility is needed", says an important stakeholder. "The project has been off the schedule for a long time."

In addition, at the end of April, at the balance sheet meeting, the BVB shareholders were presented with the Income and Expenditure Budget for this year for approval, but the supporting documents do not mention possible new delays in the authorization of the CCP and the need for negotiations for software.

"The year 2024 is also vital from the perspective of the new products that BVB intends to launch, namely the derivatives market with indices, shares and energy as the underlying asset. The launch of these products, estimated to take place in the second half of the year, will involve a substantial effort to promote but also to educate partners and investors", states the Budget and Business Plan of the stock exchange for this year, approved by the shareholders on April 24.

In just two working days, the BVB announced the existence of potential risks induced by the need for the negotiations that will follow regarding technology services and that it is also evaluating the need for a partial depreciation of the investment - i.e. a loss.

Then, the BURSA newspaper asked the BVB management for details about the situation of the CCP project, and the management of our capital market operator replied that, "considering the negotiations regarding the supply of the software, it cannot provide more details for the time being".

According to the last annual report, the share capital of CCP.RO is 90.67 million lei, with BVB's participation being 52.4%. The entity's shareholders also include OPCOM, PPC Energy (formerly Enel), Electrica, Banca Transilvania, former SIFs and brokerage houses.

The CCP is an entity that intervenes between market participants, becoming a counterparty for each of them. In this way, a transaction is split into two, with the Central Counterparty becoming the buyer for the seller and the seller for the buyer. This guarantees both the buyer and the seller the completion of the settlement of the transaction.