The Committee on Capital Markets Regulation, a non-partisan group based in the US, made the call in a letter sent last week to Timothy Massad, chair of the Commodity Futures Trading Commission, and Michel Barnier, the European commissioner for internal market and services. At issue is the lack of coordination between US and European regulators on G20-led reforms to the swaps market, and in particular rules that mandate the clearing of OTC derivatives contracts that can be standardised. Under the European rules, US clearing houses can only achieve recognition if the CFTC first recognises EU clearing houses. However, the US has only granted equivalence to EU clearing houses for US dealers and not buyside firms, which does not satisfy the European rules.
From December 15, the EU will introduce the Capital Requirements Directive IV, new rules that require EU banks to hold more capital against trades that are not passed through EU-approved clearing houses. Up to 60 times more capital could be required, according to the letter. According to the letter, if the European Commission does not recognise US clearing houses by December 15, European firms will be forced to process trades only through European clearing houses, which risks “fragmenting the swaps and futures market and decreasing market participants’ access to all cleared derivatives”.
The letter recommends a number of steps the CFTC and European Commission should take to resolve the differences in rules and help achieve recognition. The US and Europe have differing rules covering the amount of collateral paid to clearing houses to guarantee trades, the protection of collateral held at clearing houses and bankruptcy.
CCMR letter
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