Regulators and derivatives exchange chief executives have weighed in once again on the issue of Europe granting equivalence to US central counterparties (CCPs), as an agreement between regulators seems imminent.
Comments at the Futures Industry Association’s annual IDX event in London showed the standoff is still a major concern despite US and European authorities working towards an agreement this summer.
Verena Ross, executive director of the European Securities and Markets Authority (ESMA), opened the event by highlighting the importance of consistency in a market which is so global in its nature.
“We can all talk about how our respective rules are different or better than the others, but that is not the best way forward,” she said.
The comments made by Ross at the event suggested ESMA was open to finding a solution, however, also placed the ball back in its US counterpart’s court by calling again for it to review its margin requirements which have stalled the talks progressing.
A major part of the disagreement lies in the Commodity Futures Trading Commission using a one-day minimum liquidation period, while Europe requires a minimum two-day period.
The stalemate is plaguing the market with uncertainty and market participants have been urging regulators to come to an agreement.
Derivatives exchange leaders subsequently dubbed Ross’ comments as “encouraging” on a panel following the keynote by the ESMA director.
Garry Jones, chief executive office of the London Metal Exchange, voiced his concerns over the differences in margin requirements across the global markets.
“Contracts now that trade in Europe and the US which have different margin requirements, part of it comes down to the one day versus two day period.
“There are certain jurisdiction in Asia where the margins are different again.”
Jones added that is was “no surprise that people are talking about moving their clearing to a different jurisdiction”. He continued to say that there is going to be a problem of regulatory arbitrage which is not a good thing for the market.
Phupinder Gill, chief executive officer, CME Group said the “constructive approach” meant that at some point this summer we will get the equivalence granted. He added that it was interesting that Singapore had received equivalence despite having the same regime as the US.
Intercontinental Exchange’s Jeffrey Sprecher, said Ross’ comments were encouraging and he was glad the issues had been uncovered and that real data was being used to overcome the issues.