Category: EC

CFTC EC SEF Agreement May Not Help Liquidity Issues

Earlier this month, the Commodity Futures Trading Commission announced that it would allow US persons to trade on European multilateral trading facilities without the MTFs having to register as swap execution facilities (SEFs) in an attempt to ease concerns over liquidity within the market.

However, platform operators seem to think that this new CFTC EC SEF agreement may not do much at all to keep liquidity between Europe and US markets.

It seems that, while traders from either country may now trade on either platform, the use of two separate platforms at all creates a bifurcation within the market, leading to a lack of liquidity between the two countries.

In order for US traders to be able to trade on MTFs, they must operate under certain standards that would be comparable to the US. Many platforms however, may not be willing to subject non-US traders to US regulations and may not bother qualifying, leaving US traders unable to use their platforms.

On top of this, some market participants are saying that the trading being done on MTF’s are currently not offering the types of swaps that would force a US trader to use them in the first place, meaning the CFTC EC SEF agreement will have no effect on the market.

European Benchmark Legislation May Harm Banks’ Derivatives Positions

While the European benchmark legislation was designed to add clarity to the marketplace after the LIBOR scandal, it may wind up causing European banks to drop derivatives positions.

Under the European Parliament Economic and Monetary Affairs Committee’s revised European benchmark legislation, EU based institutions will be forbidden from holding any products linked to unauthorized benchmarks.

Banks are finding this to be problematic, as it seems a majority of non-EU benchmarks will not meet the required standards to be considered authorized, which, as the rules currently stand, could include over the counter (OTC) derivatives.

In the original proposal for European benchmark legislation, the European Commission would have prevented EU financial institutions from using any benchmarks outside of Europe, unless they were produced by institutions with rules comparable to that of the EC. However, many are hoping to have this changed so that benchmarks from institutions who have agreed to the practices laid out by the International Organization of Securities Commission can also be accepted—though even that would rule out most non-EU benchmarks.

It seems unlikely that the European Commission will be giving much leeway to banks in this area, and while European officials are hoping to have the final rule ready by May, it will not be taking effect until later in 2014 or early 2015.

US CCPs Feeling Confident over EC Approval

US central counter parties (CCPs) seem to be gaining confidence that the European Commission (EC) will overlook differences in their clearing house rules, preventing US CCPs from losing European clients.

The rules set out by the European Market Infrastructure Regulation (Emir) vary from those followed by US CCPs. While EMIR requires  a minimum holding period for futures margining in Europe to be two days, its only one in the US, for example.

Because of this and a list of other differences, US CCPs have been concerned over whether or not they would be prevented, or at least delayed, from being approved by the EMIR as qualified CCPs in Europe.

However, it seems these fears are being put to rest as things begin to move forward. Perhaps one of the biggest factors in this is the Commodity Futures Trading Position’s new attitude toward working with European regulators after the departure of previous chairman Gensler.  The CFTC has recently agreed to allow US entities to trade on European platforms, provided they meet certain standards.

Because of this, many are now assuming that the EC will be much more inclined to allow US CCPs that have adopted similar internal practices to Europe’s to qualify.

CFTC and EU Work Out Cross-Border Trading Agreement

The Commodity Futures Trading Commission (CFTC) and the European Union (EU) have been butting heads over how to jointly regulate international swap trades for some time now. But after meeting yesterday, it seems the two regulators have finally worked out a cross-border trading agreement.

The CFTC and the EU have agreed to allow US firms to trade over European platforms, rather than forcing them to be traded through US swap execution facilities, or SEFs. The cross-border trading agreement will keep liquidity within the market, as well as ease tensions between the US and Europe over the CFTC’s foreign trading policy.

The agreement is not without restrictions however. In order for trades to be executed outside of US facilities, the country handling the trade must have standards in place that can be considered comparable to the CFTC’s. While this may seem simple enough, the requirement has so far only been met by the UK, according to the commission.

It also may be some time before other European countries are considered up to par by the Commission, as the EU isn’t planning to have its trading rules in place until 2016.

This new cross-border trading agreement is quite the turnaround for the CFTC— which was actually sued for its overbearing foreign trading policies toward the end of last year. This is no doubt due in part to former chairman Gary Gensler stepping down, and it will be interesting to see how the market fares with a more lenient CFTC.

US an EU Close to Deal on Cross-Border Derivatives Rules

The US and European Union have been working on an agreement over cross-border derivatives rules for a while now, and are finally closing in on a deal, according to Bloomberg.

The agreement will relieve EU trading platforms from being affected by US derivative trading rules, at least for the time being.

The deal is being handled by the Commodity Futures Trading Commission (CFTC) and European Union officials, and while it seems they’ve come to an agreement over cross border-trading rules, nothing will be finalized until February 15th.

The US’s policy on cross-border trading had been a point on contention for many large banks, some of which have recently sued the CFTC over its ability to police trades that are made from banks outside of the country.

The CFTC claimed that any trades made by an outside bank that was essentially at all linked to a US trader would have to do so according to the CFTC’s rules. This policy however, was causing foreign banks to stop trading with the US and creating fragmentation within the market, according to banks involved with the issue.

This turnaround for the CFTC seems to mark the beginning of a different type of Commission, quite possibly caused by Gary Gensler stepping down as CFTC chairman. Gensler was known for policing the derivative market very strictly, and it seems likely that the CFTC will loosen up a bit with him gone.

EU and CFTC to Work Together on Cross-Border Regulation

The EU and the CFTC have announced that they will be working together in their implementation of cross-border regulation, after talks in Washington.

The regulators have been piecing together new laws in the hopes of preventing a similar financial crisis to the one in 2008, which had significant negative effects on both country’s economies.

The EU and the CFTC have agreed to “minimize the divergence on margin requirements” for over the counter derivatives, according to a report by Bloomberg. They have also promised to work together and create consistent standards for cross-border regulation.

This is actually the second time the EU and CFTC have discussed cohesion on cross border regulation. Back in July of 2013, the two regulators had agreed to work together on these issues. However, the CFTC was very quick to act on derivative regulation while ex-chairman Gary Gensler was in charge, implementing many of the initiatives of the Dodd-Frank act before the EU had even finished discussions on how they would go about regulating the industry.

Included in the CFTC’s initiatives were rules for cross-border regulation that had been criticized for affecting many of Europe’s banks, which lead to tension between the two regulators.

Now that Gensler has left the CFTC, it seems likely the Commission may slow down on its rule making, giving the EU a chance to catch up.

The two regulators will be meeting again in July.

French Banking Lobbyists Criticize European Union’s Proprietary Trading Rules

The European Union’s plan to quell big banks’ proprietary trading has been met with criticism from French banking lobbyists who say it will give an advantage to US banks, which would not be affected by the new rules.

Interestingly, the rules the European Union has agreed upon are already less severe than their initial plans to actually break up large banks, which were deemed “to big to fail” after the fall of the Lehman Brothers sparked the financial crisis of 2008.

While French banking lobbyists criticize the European Union’s plans, saying they will take away French banks’ freedom to trade, EU commissioner Mike Brainer has pointed out that the new rules will not actually restrict the banks from trading, but merely make them move the trading to a separated subsidiary. The goal behind this is to separate risky trading from the safer banking actives like deposit taking.

Meanwhile, as French banking lobbyists criticize the European Union for being too strict, other countries like Germany and England have found the rule to be adequate, according to a Reuters report on the matter. And, furthermore, other countries have found the EU’s plans to be too lenient on the banks.

The rule will wind up being similar to the US Volcker Rule, though the banning of proprietary trading will only wind up affecting the top 30 European banks.

Regardless, the European Union will have plenty of time to debate the issue, as rules aren’t likely to go into effect until 2017.

CFTC and European Commission Reach Concordance on Derivatives

The tenuous issue of cross-border derivatives regulation between the United States and the European Union may be over soon, according to a press release from the CFTC today. Gary Gensler, Chairman of the Commodity Futures Trading Commission (CFTC), and European Commission representative Michel Berneir have announced that the two regulatory bodies may have created a ‘common path forward’ for dealing with cross-border swaps.

The European Commission and the CFTC have many advantages of developing cross-border regulations together. In light of this demonstration of international cooperation, some have hopes that the G20 promise to promote transparency in over-the-counter derivatives trading will become more of a focal point in regulation.

The Path Forward, as this plan has been anointed  includes many no-action temporary reliefs in situations where CFTC and EC rules regarding risk mitigation and recording have been considered equivalent. For example, in the case of bilateral uncleared swaps, the rules have been deemed comparable in purpose and scope by both regulatory bodies. Because of this equivalence, the CFTC has ordered a no-action time relief for the transaction-based requirements. Furthermore, the CFTC projects that foreign trade boards will be able to list swap dealings directly, if they’ve already been given no-action relief.

In addition to those no-action time-limited reliefs, the CFTC’s press release included others such as multilateral trading facilities (MTFs). The full press release can be found on the CFTC website.

Evaluation By EU of U.S. Credit Swap Rules Delayed

The European Commission has given regulators at the European Securities and Markets Authority more time to analyze United States and Japanese credit swaps. The original deadline for their analysis was June 15th, but ESMA has been given an extension until September 1st to formulate an opinion on third party clearing houses regarding OTC derivatives regulation.

Until the robustness of US credit swap policy has been reviewed, some European banks have been given more restricted access to clearing houses outside of the European Union. Because of concerns that US banking policies may not be compliant with European policies, credit swap rules have become a contentious issue between US and EU regulatory bodies, according to Bloomberg.

Since Dodd-Frank was enacted and furthered the  US Commodity Futures Trading Commission’s international reach, it has caused some compliance issues abroad. The reason for the postponement, according to a letter posted to the European Securities and Markets Authority’s website from the European Commission, is “to allow ESMA more time to take account of international on-going developments and to consider their implications fully.”

Along with reviewing United States credit rules on September 1st, Japan will also be analyzed in this report. A full schedule of ESMA’s proposed assessments of national credit swap rules can be found on their website.

CFTC Asked to Delay Expiration of Swaps Rules Exemption

The E.U. has asked for a delay in the enforcement of new swaps rules set to take effect on July 12, when the exemptions for overseas banks of the Dodd-Frank Act expire. In a report by, the European Commission addressed Gary Gensler, the head of the U.S. Commodity Futures Trading Commission. The EC requested the expiration date of the exemptions to be pushed back in hopes that there would be more time for the Group of Twenty to agree upon new rules. According to, the joint letter by the EC’s “director general for internal market and services,” Jonathan Faull, and Steven Maijoor, chairman of the European Securities and Markets Authority” called for an extension or else “EU firms would face huge legal and operational uncertainty.” The temporary exemption allowed foreign banks and foreign branches of banks to avoid having to register with the CFTC, and also avoid having to follow overlapping regulations. Syed Kamall, a member of the European Parliament stated that if the CFTC does not delay the expiration, the market should expect “regulatory arbitrage, which businesses will seek to exploit.”