U.S. and the European Commission struck a landmark cross-border deal to oversee $633 trillion derivatives market.
US, EU Landmark Cross-Border Deal
The deal struck between the U.S. derivatives regulator Commodity Futures Trading Commission and the European Commission involves accepting some of their rules as ‘essentially identical’.
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Under the landmark deal, CFTC will allow U.S. banks operating in the European Union to comply with some local rules and delay applying others. This deal would facilitate firms to avoid the burden of complying with two different sets of regulations.
Recognize Each Others Rules
The deal would put both the U.S. and the EU on a path to recognize each other’s rules as essentially the same. This would facilitate both the groups to rely on the relevant domestic authorities to apply and enforce them.
The landmark deal will help address a bone of contention in international trade between Europe and the U.S. as they embark on talks towards a landmark free trade agreement. The deal would also make it easier for U.S. bank trading in Europe.
The deal would relax proposed U.S. rules in some respects. For instance, the deal would provide options to firms to choose which jurisdiction’s rule to apply, while trading swaps that are too complex or unique for a clearing house. It will also facilitate U.S. firms to use EU trading platforms until at least March 2014, by which the EU hopes to adopt new trading rules. Further, EU clearing houses obtained an extension until the end of the year to comply with new U.S. rules.
Deal Just In Time
Earlier, officials feared the transatlantic financial markets would have faced heavy consequences without a deal. The absence of the deal would have forced two big European clearing houses, viz: Deutsche Boerse AG (ETR:DB1)’s Eurex and LCH.Clearnet, to stop handling U.S. trades from this weekend.
The transatlantic regulators have been trying to implement the rules in response to the 2007-2009 credit meltdown. The deal is expected to make derivatives industry safer besides preventing a repeat of bank bail-outs.
As reported earlier, CFTC has finalized and approved a number of rules related to swap execution facilities, giving market participants increased clarity as the mandatory OTC clearing environment continues to evolve.