The European Commission is in ‘near daily’ discussions with US regulators as it tries to solve the cross-border issues surrounding the mutual recognition of central counterparties (CCPs) on both sides of the Atlantic.
The clock is ticking down to a 15 December deadline for the two regulators to reach an agreement on recognising each other’s clearing houses under new derivatives rules.
According to the European Commission’s Michel Barnier, discussions are ongoing but said ‘it takes two to tango” and “the American side must also deliver”.
“Let me reassure you: We want to find practical solutions in the coming weeks,” added the internal market commissioner heading up Europe’s reforms.
Barnier’s comments follow a similar statement from his US counterpart, Timothy Massad, who is chairman of the Commodity Futures Trading Commission (CFTC). Massad said last week he had been focused on cross-border issues from the day he joined, back in June.
A path forward was struck between the two bodies in July 2013 but has yet to produce any results. With the CFTC under new leadership and a pressing deadline on the horizon, one industry expert told theTRADEnews.com that the market was 99% sure the two would come to an agreement.
The Capital Requirements Directive IV (CRD IV), which enforces the new Basel III capital adequacy regime in Europe, imposes a deadline for recognition and authorisation of non-European CCPs of 15 December.
If US CCPs are not recognised under EMIR the cost of clearing derivatives there would sky-rocket due to the capital charges they would face under CRD IV.
“The market is expecting a resolution, but if things get tighter towards the deadline people might start doing contingency planning,” said Lee McCormack, clearing business development manager, global markets, Nomura. “If the recognition isn’t granted sooner rather than later then you might see people starting to re-adjust somehow.”
Though 15 December represents the latest date the two regulators can come to a decision, Simon Puleston Jones, CEO of futures trade body FIA Europe, recently told theTRADEnews.com that an agreement would need to be struck in September to avoid a major disruption to trading.
He believes that the issue could end up landing with the G-20 in November, taking the decision out of the hands of the very rule-makers and regulators on both sides of the Atlantic who are most familiar with the complexity of the issues involved.
McCormack highlighted the implications of an agreement not being reached.
“For Nomura International, as a European-authorised entity, if December 15 ticks over and, let’s say CME are not recognised, we cannot clear for our clients onto the CME,” he added. “Alternatively we would have to re-paper them to go into our US legal entity. I am unaware of clients doing that just yet, but if we tick over into October and November you might see people doing preparations for a doomsday scenario.”