US regulators may need to take the first step in resolving cross-border clearing issues with Europe due to pre-existing EU laws, according to an industry association.
The cross-border application of both jurisdictions’ respective clearing rules has become one of the biggest headaches for the industry.
A 15 December deadline for European approval of US central counterparties (CCP) is also looming, though the European Commission is considering a six-month extension to help banks avoid major capital charges for clearing through a US CCP.
While both sides claim they are working hard at coming to an agreement, the market is still awaiting word of a delay or resolution.
According to Matt Nevins, managing director and associate general counsel of the Securities Industry and Financial Markets Association’s Asset Management Group, the US has to make the first move in line with EU legislation.
“The US has yet to make a substituted compliance determination for European CCPs and because of that European regulators have not made a substituted comparability determination with respect to US clearing houses,” he said.
“The EU legislation has embedded within it a requirement that the other jurisdiction has to have made a sufficient enough recognition of the EU regime in order for the EU to act.”
Dubbed as the ‘doomsday scenario’, the market has been seeking a resolution in the months before the deadline, making some form of communication from the European Commission an immediate necessity.
Market participants had previously told theTRADEnews.com that the situation had to be resolved during September to avoid market disruption, with every day that passes adding concern to clearing firms.
“It is unfortunate that there hasn’t been closer co-ordination among the global regulators on derivatives rulemaking. I think it is crucial for everyone involved that regulators and firms across jurisdictions work together as much as possible to decrease the risk of fragmentation,” added Nevins.
“The derivatives rules are a great example where we are seeing potentially conflicting rules coming out of different jurisdictions on different timelines, but with substantially the same final result.”