The European Securities and Markets Authority (ESMA) has appealed to US regulators to extend an exemption on swaps rules under the Dodd-Frank Act to European firms, without which it believes would cause uncertainty in the region.
ESMA’s letter, dated Thursday, was sent to Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC) and called for an extension to the current exemptive order on cross-border application for swaps rules.
Until 12 July, European firms are exempt from meeting CFTC rules under Dodd-Frank for cross-border swaps, which would extend the US regulator’s reach into Europe – a key region for the US$630 trillion swaps market.
Signed by Jonathan Faull, European Commission Director General of Internal Market and Services and Steven Maijoor, chair of ESMA, the letter calls on the CFTC to extend the exemption until international agreement can be reached through global regulatory bodies.
The letter cites a report developed by the OTC Derivatives Regulators Group – of which both the CFTC, European Commission and ESMA are members – expected in September as a key marker for extending the status quo.
“If this exemptive order were to expire before these important international discussions have been finalized and their outcome reflected in our respective regulatory frameworks, EU firms would face huge legal and operational uncertainty,” the letter read.
The extraterritorial elements of both the CFTC’s Dodd-Frank rules and swaps rules developed through the European market infrastructure regulation (EMIR) have come under scrutiny as overlapping rules will affect firms active in the swaps market, which has traditionally operated in a borderless fashion.
Both EMIR and Dodd-Frank seek to reduce the opacity of OTC derivatives trading, by mandating the central clearing of swaps and pushing trading onto exchange-like venues.