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Christopher Giancarlo, chairman of the Commodity Futures Trading Commission, delivered a rousing speech in Chicago. He warmed up slowly, talking about the promise of fintech and thanking colleagues for their work on technical subcommittees. Halfway through, though, he stunned the room with a crescendo of criticism levelled at European policymakers whose planned approach to derivatives regulation was “unprecedented” and “wholly unacceptable”. The mooted move by EU regulators to engage in “extraterritorial over-reach” was “completely irresponsible”, he said. It was a fair point. European proposals threaten to duplicate regulation and give the EU27’s markets regulator the power to inspect the activities of a US derivatives business on its home turf. Mr Giancarlo had the humility to admit that the US had itself been guilty of over-reach. Following the passing of the Dodd Frank Act of post-crisis financial reforms, the CFTC was controversially given extraterritorial regulatory rights over foreign market participants in foreign jurisdictions.
Fragmentation in global derivatives markets would be bad news for anyone who directly or indirectly uses them to hedge their risks. Traders, exchanges, clearing houses and other market participants say the future of the global market is at threat if national regulators cannot agree on a system of collaborative oversight. Multiple regulators demanding compliance with different standards, sometimes in the same location, can only lead to a fractured market. If an interest rate swap taken out by a European company is barred from being pooled with US client swaps, because conflicting rules proscribe that, the efficiency of the system is compromised.
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