EU and US reach agreement on derivatives trading ahead of MiFID II

Decision means banks and traders can use US venues to trade derivatives in compliance with MiFID II.

The European Commission and the derivatives regulator in the US have agreed on terms, which will see mutual recognition of trading venues weeks before MiFID II.

The decision ensures some trading venues in the US will gain equivalence for MiFID II rules and platforms in Europe can offer services to counterparties in the US.

EU counterparties will be able to trade derivatives subject to MiFID II trading rules on regulatory swap execution facilities (SEFs) and designated contract markets (DCMs) venues in the US.

The European Commission and the Commodity Futures Trading Commission (CFTC) explained the ruling does not affect EU counterparties trading on venues for derivatives not subject to MiFID II trading obligation.

“European firms can continue trading in derivatives on US trading platforms and effectively hedge against risk, setting conditions for stronger growth in Europe,” said Valdis Dombrovskis, European Commission vice-president in charge of financial stability.

“On the other hand, US firms can hedge their exposures on EU platforms, facilitating trade and exchange between the EU and the US.”

A ‘common approach’ was first announced in October when the CFTC recommended an order of exemption from its SEF registration requirements for multilateral trading facilities (MTFs) and organised trading facilities (OTFs) in the EU.

Christopher Giancarlo, chairman of the CFTC, welcomed the Commission’s decision on equivalence for US trading venues regulated by the CFTC, adding it is essential to ensuring a strong and stable trans-Atlantic derivatives market.

The decision represents the third time both bodies have been able to reach equivalence agreements; first in 2016 with respect to central clearinghouses, earlier this year with respect to margin requirements for uncleared swaps and this week with trading venues.