SEC vote brings US-EU closer to derivatives equivalency

Equivalency will ease the capital cost for European banks doing business with US CCPs.

A key vote by the US Securities and Exchange Commission (SEC) on clearing derivatives has brought it closer to an agreement on cross-border regulation with the European Union (EU). 

The SEC passed unanimously a vote to bring new standards, such as risk management, to clearing houses that clear equity derivatives and fixed income. 

The vote from the SEC is set to bring the US closer to gaining equivalency from the EU, which would allow US clearing houses to clear trades from European banks.

Without the recognition, European banks would face tougher capital rules for trading and clearing US securities, which was estimated to amount to an additional $5 billion in capital requirements.

“Without such recognition, a CCP cannot admit firms established in the EU to membership. It cannot clear for trading venues established in the EU nor can it clear products subject to the clearing mandate for market participants established in the EU,” stated Craig Donahue, CEO and executive chairman of the Options Clearing Corporation (OCC). 

Donahue also said the risk weighted asset exposure for OCC’s EU affiliate clearing members’ could reach to over to over $75 billion if equivalency was not reached.

“Ultimately, the imposition of punitive capital charges on OCC’s EU-bank affiliate clearing members will trickle down to exchanges and market participants and would adversely impact the entire marketplace,” he added.