The chairman of the world’s largest futures exchange has given his vote of confidence that US and European regulators will come to an agreement on equivalency before the February 21 deadline.
The global derivatives industry is awaiting a ruling from the European Commission to grant US supervision of clearing houses equivalent to European rules. The cut-off date for the ruling is February 21, and if an agreement is not reached by then, the cost for European banks to trade and clear with US clearing houses will sky rocket.
CME has perhaps the most to lose. Its Eurodollar future is the most traded contract in the world and is used widely in Europe. According to reports, if an agreement between the regulators is not met then some banks will stop using CME’s US central counterparty (CCP) altogether.
However, Terry Duffy, CME Group’s chairman and president, has voiced his confidence that an agreement will be announced soon.
“We feel very confident that we’ve gotten all the issues resolved. I met with the chairman… and I assure you that chairman Massad understands the magnitude of the potential market disruption if in fact the US is not deemed equivalent prior to the February 21 frontloading date. So that being said, it gives us comfort, but we’d like to see it ahead of time,” Duffy said on CME’s earnings call.
“The chairman has recognised that there could be market disruptions and that would be the worst thing that could happen – not only to the US market but to European participants as well… So we feel confident that we will get this done.”
The first wave of mandatory interest rate clearing in Europe for big banks will take effect in June.