European banks to extend dealing with Indian clearing houses

This comes after a dispute between Indian and European regulators, which risks disrupting billions of rupees of trading if unresolved

MARKET regulators in France and Germany asked their banks to continue dealing with India’s clearing houses beyond an October-end deadline, said people familiar with the matter.

Europe’s authorities set the deadline last year after their request for co-supervision of European trades settled through Indian clearing houses was denied by the Reserve Bank of India (RBI).

They have told their banks to consider alternate arrangements with local lenders, said sources, including an Indian official.

The possible options include European banks settling trades through Indian peers, instead of dealing with the clearing houses, they added, who did not want to be identified as the discussions are private.

Another alternative is for French and German banks to set up operations as a bond underwriter.

This comes after a regulatory dispute over supervisory powers threatened to derail trading. Indian and European regulators have been locked in a tussle after the RBI denied the request from the European Securities and Markets Authority (ESMA) to co-supervise some transactions.

In response, ESMA withdrew recognition from six Indian central counterparties in May 2023. If unresolved, the dispute risks disrupting billions of rupees of trading in government bonds and interest-rate derivatives that are transacted on the clearing corporation of India’s platforms.

A spokesperson for the French regulator said they had no comment to make on this matter, while the German watchdog’s spokesperson said they cannot comment on discussions with policymakers. India’s finance ministry spokesperson did not immediately respond to a request for comment.

European banks including BNP Paribas and Deutsche Bank are important market makers in India and their withdrawal may affect trading volumes, especially in interest-rate derivatives and currency forwards. BLOOMBERG