Two influential Commodity Futures Trading Commission (CFTC) committees are set to meet in the coming weeks to agree on high-profile / controversial? cross border and technology issues.
On 21 May, the US derivatives regulator’s Global Markets Advisory Committee will meet to discuss cooperation with foreign regulators on oversight of non-US clearing houses and swap execution facilities (SEFs).
This week, the CFTC awarded temporary registration to the first non-US SEF, London-based ICAP Global Derivatives. Inter-dealer broker ICAP sought to register the platform as a SEF to enable European investors to trade swaps with US persons, which are obliged to trade a growing range of previously OTC instruments on SEFs following made available to trade applications by platforms.
The CFTC is also thought to be close to setting new rules for foreign central counterparties (CCPs) that are not seeking a US derivatives clearing organisation (DCO) licence. The rules are expected to provide exemptions for foreign CCPs as many believe the costs of registering as a DCO will outweigh the benefits.
So far, only Singapore Exchange has been granted DCO status, though many other foreign CCPs have received no-action relief, enabling them to service US banks.
While new rules for derivatives markets, requiring OTC derivatives to be centrally cleared, have been developed on a global basis following the G-20’s meeting in Pittsburg in 2009, each jurisdiction has introduced slightly different rules and is operating to different timetables. These differences have led to concerns over how cross-border business should be handled in derivatives products that are traded globally.
The CFTC has also been taking a close look at the use of technology in derivatives trading and on 3 June its Technology Advisory Committee will hold a meeting focused on high-frequency trading (HFT), market surveillance and SEFs.
HFT in particular has been a hot topic in the US since the publication of Michael Lewis’ ‘Flash Boys’, which claimed markets were rigged against investors by sophisticated HFT firms. The CFTC is currently investigating relationships between several HFT firms, CME Group and Intercontinental Exchange to discover whether any unfair incentives are being offered to them.