Cash & Liquidity ManagementInvestment & FundingCapital MarketsEurope and US Reach Accord on Derivatives

Europe and US Reach Accord on Derivatives

After a year of complex negotiations US and European Union (EU) regulators have reached an agreement on policing derivatives trading, in a breakthrough that divides up responsibilities and avoids a dispute that would have disrupted global markets.

US derivatives regulator the Commodity Futures Trading Commission (CFTC), and the EU’s executive, the European Commission (EC), announced a ‘path forward’ on a package of measures for cross-border derivatives. Preceded by difficult negotiations between the US and European finance ministers, the agreement will smooth the path for the two sides in their talks on reaching a landmark free trade agreement.

It also paves the way for the CFTC’s cross-border guidance to be adopted, following a controversial three-year process during which it has been writing rules to rein in the US$633 trillion swaps market. The agreed package of measures puts the EU and the US on a path to recognise each other’s rules as essentially the same, so that they can rely on the relevant domestic authorities to apply and enforce them.

“The CFTC and the European Commission share the view that jurisdictions and regulators should be able to defer to each other when it is justified by the quality of their respective regulation and enforcement regimes,” the regulators said in a joint statement.

CFTC chairman Gary Gensler, who urged strict oversight of foreign trading to ensure blow-ups abroad do not hit US taxpayers, said the deal was a “significant step” in the “mutual journey to bring transparency and lower risk to the swaps market worldwide”.

Michel Barnier, the EU commissioner responsible for the reforms, added: “Our discussions have been long and sometimes difficult but they have always been close, continuous and collaborative talks between partners and friends.”

Barnier also referred to the agreement when he appeared, as a keynote speaker, at a debate held in London on the UK’s future in European financial services. “The US has Dodd-Frank while the EU has the European Market Infrastructure Regulation [EMIR] and just a few differences between the two can create problems,” he told delegates. “That’s why the EC has been talking to the Americans, in an effort to close the gaps.

“The financial crisis showed that the EU needed a stronger financial sector and that’s what we’ve been building across all 28 EU countries.”

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