The U.S. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which included three important priorities:
• It brings comprehensive regulation to OTC derivatives dealers.
• It requires standardized derivatives to be cleared by regulated clearinghouses.
• It requires standardized derivatives to be traded on transparent exchanges or swap execution facilities.
Two weeks ago, the European Commission released its proposal on OTC derivatives, central counterparties and trade repositories. The EC also covers the entire marketplace – both bilateral and cleared – and the entire product suite, including interest rate swaps, currency swaps, commodity swaps, equity swaps and credit default swaps. It is clear that the partnership between the U.S. and Europe is bearing fruit.
Both the Dodd-Frank Act and the EC’s proposal have strong capital and margin. This is necessary to help lower risk. They also both have reporting requirements to swap data repositories so that regulators around the globe for the first time can see a transparent picture of the transactions and positions in this marketplace. The U.S. statute says that information in swap data repositories that are regulated should be available to foreign regulators.
The Dodd-Frank Act also explicitly authorizes the CFTC and the Securities and Exchange Commission (SEC) to write business conduct standards to lower risk and promote market integrity. Though the EC has not explicitly taken up business conduct standards for derivative dealers in its proposal, it has recommended important risk mitigation techniques that are in line with key aspects of the U.S. approach.
He also said that he looks forward to coordinating with the newly approved European Securities Market Authority (ESMA), "as we draft our business conduct rules and as ESMA considers similar standards.”
© CFTC - Commodity Futures Trading Commission
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