The EU and US regulators failed to harmonise industry rules for derivatives trading on 7 May 2015, as the meeting between Jonathan Hill, European Commissioner Financial Stability, Financial Services and Capital Markets Union, and Timothy Massad, chairman of the US Commodity Futures Trading Commission (CFTC) in Brussels, did not lead to an agreement on the recognition of each region’s rules on clearing houses.
In the last two years there were continuous attempts to harmonise the rules - and therefore prevent banks and hedge funds from moving to the jurisdiction with the most favourable treatment - without a resolution yet, however the US and EU officials declared in their joint statement released after the meeting that “discussions were constructive and progressing” and they hoped to finalise a joint approach by summer.
Both EU and US regulations aim to make derivatives less vulnerable to market shocks. In derivatives traded on exchanges, margins are deposited at clearing houses which stand between the buyer and seller. Under the new rules, clearing became mandatory and regulators want these third parties to hold enough cash in case they go bankrupt.
Patrick Pearson, senior official of DG FISMA, said the EU was focused on reducing systemic risk by ensuring financial stability via margins posted by banks whereas the CFTC’s priority was investor protection of clients. The EU has previously argued that the CFTC’s approach is less stringent. However, during his visit, Mr Massad argued the biggest difference between the two sides laid in the margin that had to be put up for derivatives trading by the customers of clearing members and that the U.S. system of margining clients provided better protection by building up a bigger pot of cash.
For more information, please read the articles from Reuters and Financial Times.