The European Commission and the Commodity Futures Trading Commission (CFTC) have agreed a deal that allows European OTC derivatives trading venues exemption from US regulations until equivalent European rules come into force.
Following a meeting in Washington yesterday, the US derivatives regulator issued two no-action relief letters which effectively allow US swap dealers and major swap participants to execute swaps transactions on qualifying EU-regulated multilateral trading facilities, without further regulatory approvals from the CFTC.
The agreement follows concerns that differences between Europe and the US in the detail and implementation timelines for new OTC derivatives markets rules would split the market in two, thereby potentially damaging liquidity and driving up costs for market participants.
The US has already implemented electronic trading, central clearing and reporting of previously bilateral and largely voice-broked OTC derivatives trading under the Dodd-Frank Act, but the European legislation has lagged. Yesterday market the start of new reporting obligations in Europe under the European market infrastructure regulation. New rules for European trading venues for OTC derivatives were signed off in Brussels in January as part of MiFID II, but these are still subject to a vote and may not be fully implemented for another three years.
Yesterday’s agreement follows the signing of a joint ‘Common Path Forward’ initiative last year under which US and European regulators committed to working together to carry out G-20-inspired reforms to the OTC derivatives markets in a coordinated fashion to limit unnecessary disruption to the existing market.
“As the CFTC moves forward with the swap trading mandate, it must and will continue to work with its counterparts in Europe and elsewhere to meet the G-20 commitments and ensure that standardized trading on regulated platforms protects global liquidity formation and provides much-needed pre-trade transparency to market participants,” acting CFTC chairman Mark Wetjen.
“Following the trilogue agreement on MIFID II last month, this is an important further step in implementing a joined up, consistent global approach to ensure that financial markets work for the benefit of the real economy. In particular this agreement shows how regulators can and should work together to ensure that their respective rules interact with each other in the most effective and efficient fashion. This needs to be done without creating regulatory overlaps or loopholes this creating a global level playing field for operators,” added European Commissioner Michel Barnier.