Friday, February 07, 2014 8:36:56 AM

Cross-border swaps cohesion speeds up with trade talks

Greater coordination between Europe and the US on key OTC derivatives reforms may occur faster if included in trade talks, as platform operators and sell-side firms seek new ways to serve clients in different jurisdictions under current rules.

Last week the European Commission published a framework for regulatory cooperation in financial services for on-going Transatlantic Trade and Investment Partnership (TIPP) talks that began last year. The document does not highlight specific rule proposals but called upon Europe and the US to reflect the agreement secured by G-20 nations for swaps reforms in respective final rules.

PJ Di Giammarino, CEO of regulatory think tank JWG, said the TIPP discussions may become the forum where cross-border OTC derivatives rules are determined between the US and Europe.

“The message we're hearing now is that some of the key extraterritorial issues between US and European swaps rules will fall within the scope of the TIPP discussions,” he told

Di Giammarino said the shift from concentrating discussions between regulators to policymakers may not slow the process down as TIPP negotiators had proven they were well organised and well resourced.

“By elevating these discussions to the political, rather than regulatory, level, it may speed up the process towards forming more harmonised rules if the process works,” he said.

“Until there is greater cohesion between these rules, all market infrastructure providers will likely continue to seek authorisation across as many jurisdictions as possible in order to continue to serve clients globally.”

A July agreement between the European Commission and US derivatives regulator the Commodity Futures Trading Commission (CFTC) to work closer in developing cohesive rules has not yet resulted in concrete rule changes. The ‘Path Forward’ agreement extended an exemption to European participants of CFTC rules.

The onset of mandatory trading on new swap execution facilities (SEFs) for certain OTC derivatives under CFTC rules has again raised the issue of cross-border swaps rules as Europe-based dealers will be forced to execute on SEFs for clients active with ‘US persons’.

Quick movers

Earlier this month, London-based inter-dealer broker (IDB) ICAP applied to US and UK regulators seeking to launch a new platform based in London that would meet rules of both jurisdictions.

ICAP Global Derivatives will operate as both a SEF under CFTC rules and as a multilateral trading facility, overseen by UK regulator the Financial Conduct Authority.

The platform will use the technology, trading protocols and rulebook developed for ICAP’s existing US-based SEF. It will trade US dollar, euro and sterling interest rate products mandated for trading under the CFTC’s ‘made available to trade’ rule.

Commenting on the development, a spokesperson for ICAP said the company sought to meet the needs of its global client base.

“The purpose of this application is to ensure that in the event of market demand to facilitate SEF liquidity across Europe and the European markets, ICAP can leverage its London located capabilities, at the same time as enabling the SEF and its execution specialists to be accessed directly by US, UK and European customers,” the spokesperson told

A rival SEF operator, TeraExchange, last month signed an agreement with a number of Europe-based IDBs to execute swaps trades on its platform to meet CFTC rules so they can continue serving customers that fall under the ‘US persons’ definition.

Richard Henderson +1 212 217 6916