MARKET INFRASTRUCTURE

CFTC chairman warns EU to not overreach in clearing battle

CFTC's Giancarlo stated stricter rules on overseeing non-EU clearing houses will damage US derivatives markets. 

By Joe Parsons joe.parsons@strategic-i.com November 07, 2017 1:40 PM GMT

The chair of the derivatives watchdog in the US has warned his European counterparts not to overreach with its proposed rules to enhance oversight of non-EU clearing houses.

In an opinion piece titled “An EU plan to invade US markets” Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC), stated stricter rules on overseeing non-EU central counterparties (CCPs) will damage US derivatives markets.

He said clearing houses, such as those operated by the CME Group in Chicago, will be subject to on-site inspections by the European Securities Markets Authority (ESMA), and to additional rules by the European Central Bank (ECB) without consultation from the CFTC.

“Such overlapping and uncoordinated regulation by the EU would be disruptive, expensive and detrimental to the US trading markets and economy,” Giancarlo stated.

“Without firm, exact and clear limits on their application to American businesses, these European proposals could dry up the capital necessary for growth and job creation.”

The proposal to rein in non-EU CCPs have been sparked by the UK’s decision to leave the EU, due to the fact the majority of euro-denominated derivatives being cleared in London.

The US is also a major euro-clearing hub, with CCPs such as LCH in New York and CME transacting a lot of business from US traders.

“If the US accepts European regulation of American financial companies, it would set a dangerous precedent—potentially opening the door to all manner of other interference. The European Union favours a highly prescriptive and rules-based approach to financial market supervision in contrast to the US principles-based approach,” he added.

The relationship between US and European regulators has been relatively frosty, particularly over cross-border rules of clearing and derivatives trading, however some progress has been made.

Most recently, the CFTC and European Commission agreed on a common approach to trading derivatives on electronic platforms, allowing European traders to execute a swap on either an EU-authorised trading venue or a CFTC-authorised swap execution facility (SEF).