European clearing houses will most likely be recognised as equivalent by the US derivatives regulator before the first wave of mandatory clearing kicks off in June, according to the head of the agency.
Timothy Massad, chairman of the Commodity and Futures Trading Commission (CFTC), said in a recent speech that it will “consider a substituted compliance determination” that will require European central counterparties (CCPS) to adhere to US clearing rules. This will then allow European CCPs to carry on doing business with US customers.
Massad added: “I think there should be no problem completing the recognition process for any CCP that clears swaps in advance of June 21, when the European clearing mandate begins.”
Last month the CFTC and the European Commission finally came to an agreement on international rules for clearing houses.
The ruling will allow US CCPs to continue serving European banks as long as they are able to demonstrate the collection of house margins for futures contracts take into account a two-day liquidation period. Massad said that US CCPs seeking recognition “already meet these standards.”
Massad also noted that European regulators are considering changing their rules to permit European CCPs to use a one-day liquidation period for futures contracts, provided that client collateral is collected on a gross basis, which is the US practice.