CAMBRIDGE, Mass., Aug. 21, 2014 /PRNewswire-USNewswire/ -- The
Committee on Capital Markets Regulation today sent a letter to the
European Commission and Commodity Futures Trading Commission
(CFTC), detailing steps that each regulator must take before
December 15, in order to avoid
disrupting the $630 trillion
derivatives market and substantially increasing the cost of hedging
financial and commodity risks for U.S. and E.U.
entities.
Unless the European Commission recognizes U.S. derivatives
clearinghouses before December 15,
E.U. legislation would effectively require E.U. banks and E.U.
affiliates of U.S. banks clearing swaps or futures with U.S.
clearinghouses to terminate these relationships.
"We cannot wait until December 14.
The time for action is now. Derivative contracts hedge risk over
several months, so counterparties will soon be unable to roll-over
existing contracts," explains Professor Hal
S. Scott, Director of the Committee on Capital Markets
Regulation.
To prevent this from occurring, the European Commission and the
CFTC must recognize each other's regulatory regime for derivatives
clearinghouses as equivalent. These regulators have yet to reach an
agreement, due to certain differences between E.U. and U.S. rules.
These differences include initial margin for futures, segregation
of customer collateral and bankruptcy laws.
"If the steps set forth in the letter are taken, then E.U.-U.S.
clearinghouse recognition is possible, without any undue risk to
financial stability. There is no need for an extremely costly
disruption of the global derivatives market," says Scott.
One issue that has received substantial attention is differences
between E.U. and U.S. rules for initial margin for futures.
However, outcomes-based analyses have demonstrated that the U.S.
and E.U. rules result in broadly consistent customer margin levels.
Thus, the European Commission and CFTC need not require
line-by-line equivalence for initial margin rules. Such an approach
would be consistent with a recommendation by G-20 derivatives
regulators that substituted compliance for derivatives rules should
be based on whether both regimes reach comparable regulatory
outcomes.
For further details regarding resolution of other E.U.-U.S.
differences, please view the letter at
www.capmktsreg.org/news/ccmr-letter-recommends-steps-avoid-disrupting-eu-us-derivatives-markets/.
The Committee on Capital Markets Regulation is an independent
and nonpartisan 501(c)(3) research organization dedicated to
improving the regulation of U.S. capital markets.
For further information:
Hal S. Scott, Director
Committee on Capital Markets Regulation
hscott@law.harvard.edu, 617.496.2217
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SOURCE Committee on Capital Markets Regulation