Much of the frustration around the regulatory overhaul of the derivatives market has stemmed from uncertainty of new rules.
Yes costs are rising, capital requirements are increasing and questions around the profitability of operating in certain parts of the market are also leading to a fair amount of headaches, but when measuring levels of frustration, the opaqueness of regulatory decisions is hard to top.
One on-going saga in the second half of the year has been the European approval of US clearing houses, dubbed as the ‘doomsday scenario’.
The backstory to this – the US hasn’t granted equivalence to European central counterparties, and the same is true vice-versa.
Whether this stemmed from tension between regulators on each side of the Atlantic or whether certain parts of each others rules didn’t meet the criteria, it was made abundantly clear that all the market wanted was at least some clarity on when this issue was going to be resolved.
December 15th essentially became the deadline for this to be resolved, with major capital requirements set to be enforced on European banks clearing through US central counterparties following that date – due to the Capital Requirements Directive IV (CRD IV).
But while this date represented the official ‘doomsday’ date, the market’s own deadline was set much before this. For if Europe was not going to grant equivalence to US clearing houses and it was not going to move the deadline, then clearing brokers would have to prepare months in advance. A decision was therefore being pushed for by the industry in September or October.
“There will need to be re-plumbing of the system and that can’t be done with a week’s notice,” said Lee McCormack, clearing business development manager, global markets, Nomura told us in October.
Yet here we are, at the end of November, and no official word from the European Commission.
On theTRADEnews.com we have followed the issue closely, with a story in August highlighting the urgency of the situation and the Futures Industry Association seeking an immediate remedy of the situation. In October we then reported that the European Commission was ready to grant an extension, but that it was likely to come at the 11th hour.
Even the US regulator entangled in the standoff – the Commodity Futures Trading Commission – has made statements commending the Commission for granting a delay, yet still no official word from their European counterparts.
This week at least two media reports have now suggested the deadline is being pushed back to June 2015, according to their sources, however this has not been backed up by regulators as of yet.
So it seems as though relief is coming, but once again the market has not received the clarity it demanded, and has had to rely on word of mouth to make its decisions.
With regulatory changes still continuing to take effect over the next few years, it will be this opaqueness, which will plague the process if regulators don’t learn lessons from these situations.