Time is Running Out to Address Derivatives’ Biggest Problem, Again

CME Group’s executive chairman and president Terry Duffy has emphasized that time is running out to come up with a solution to Europe not granting recognition to US clearing houses.
By Editorial
CME Group’s executive chairman and president Terry Duffy has emphasized that time is running out to come up with a solution to Europe not granting recognition to US clearing houses.

The equivalence stand-off has plagued the derivatives industry with uncertainty over the past year, as European regulators refuse to recognize the US due to margining standards.

Duffy is set to highlight inconsistencies in Europe’s approach and urge his own US-based regulators to take any possible actions to reach an agreement.

“The EU continues to hold up US equivalence over the single issue of margining standards – even though it has recognised other jurisdictions, including Singapore, that employ similar margin standards to those in the US,” he said. “Our margin policies meet or exceed all applicable international standards and often result in more margin being posted than would be under the EU’s rules.”

The European Commission has granted equivalence decisions to Australia, Hong Kong, Japan and Singapore, but not the US.

A 15 December deadline caused many headaches for the industry as major capital requirements were set to be enforced on European banks clearing through US central counterparties following that date – due to the Capital Requirements Directive IV (CRD IV).

While this day represented the official doomsday date, the market’s own deadline was set much before this. For if Europe was not going to grant equivalence to US clearing houses and it was not going to move the deadline, then clearing brokers would have to prepare months in advance.

Ultimately though, the decision to delay was mostly spread through word of mouth in the build up to 15 December before being confirmed by regulators just days before.

European regulators pushed this equivalence decision back to June, giving both parties only a matter of months once again to resolve their issues.

Duffy is set to urge the Commodity Futures Trading Commission (CFTC) to do all it can when presenting before the US House Agriculture Subcommittee on Commodity Exchanges, Energy, and Credit

“The CFTC has many tools at its disposal to restrict this access if forced to do so,” said Duffy. “I hope this does not prove necessary, but all options must be considered. I urge this Committee to take any and all appropriate actions to support the CFTC’s efforts to reach a solution as soon as possible because time is running out.”

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