Legislative efforts in the EU to bring non-EU clearinghouses under EMIR has elicited sharp responses from the CFTC chairman, who said that only US regulation can apply to US derivatives markets.
A draft EU law which could impose EU clearing regulation on US-based clearing houses servicing European clients has prompted concern from CFTC (Commodity Futures Trading Commission) chairman Christopher Giancarlo, who said that only US regulation will apply to US derivative markets.
“If this law passes, it could prevent EU firms from hedging US dollar exposure through CME’s traded products. EMIR [European Market Infrastructure Regulation] cannot and will not apply to US CCPs [central counterparties],” Giancarlo said in a regulatory fireside chat.
Speaking at the ISDA Industry and Regulators Forum in Singapore, Giancarlo said that extraterritorial supervision in the swaps market can have a potentially unintended consequence of “dangerous fragmentation of the global swaps markets.”
“Regulation of US derivatives markets – the world’s largest – can and will only be done by US regulatory authorities. The CFTC will determine what is appropriate regulation of US markets and market participants, just as other non-US regulators should be expected to act as rule makers for their jurisdictions. The CFTC has every right to expect that non-US regulators will defer to the CFTC on oversight of the US derivatives markets,” Giancarlo said in his keynote.
In a subsequent fireside chat with regulators from ASIC (the Australian Securities and Investment Commission) and the MAS (Monetary Authority of Singapore), the chairman said that the EU draft law, in some respects, is “diametrically” opposite to the US regulation of the OTC derivatives markets and that it could conflict.
Specifically under EMIR, the regulator has final say in the use of collateral validation methods by CCPs. However, the CFTC leaves it to the CCP to decide on collateral validation methods.