It’s been several months since the CFTC and foreign regulators agreed to begin working together to standardize derivative trading rules. However, while foreign regulators have been slow to hammer out the details of standard policing procedures, the CFTC has plowed ahead without them, attempting to institute all of the rules mandated by the Dodd-Frank act.
According to Reuters, this is getting many foreign regulators annoyed, as they claim that the CFTC’s policies are hindering talks over the Transatlantic Trade and Investment Partnership. Michel Barnier, the European official who is supervising Europe’s financial regulation, feels that the CFTC’s lack of communication is beginning to cause problems in the financial market, breaking up derivatives liquidity and causing transaction costs to increase.
Barnier has said that without an agreement over derivatives policy, and an ability to work with each other’s rules, continuing EU-US free-trade negotiations will be very difficult.
While the EU is hoping to include financial regulation in the free-trade agreement, the US is unsure if they will be able to incorporate it. However, without an agreement over derivatives trading, regulators are worried about a “balkanization” of the market, which would lead to more transactions being done outside of the proper facilities, causing a lack of transparency in the market, and undermining the whole goal of these new rules.
It may not be too late however, as Barneir and CFTC chairman Gary Gensler are currently talking, and are hoping to reach an agreement by the end of the year.