CFTC clearinghouse proposal lights new transatlantic path

19 July 2019 9:13pm
court house

12 July 2019. By Neil Roland and Brian Baker.

US Commodity Futures Trading Commission sent a signal yesterday to France and Germany that a new EU post-Brexit clearinghouse law can still be shaped to satisfy regulators on both sides of the Atlantic.

A CFTC proposal would defer oversight of foreign clearinghouses to the home country if these facilities do less than 20 percent of their business with American banks and companies.

This plan, if finalized, would allow large clearinghouses such as France-based LCH SA and Germany-based Eurex to be supervised exclusively at home if the regulatory regimes are deemed comparable to that in the US.

“I believe that objective and transparent criteria, such as the ones set forth in the proposal, are what all regulators around the world should strive for to provide appropriate predictability and stability to the markets,” CFTC Chairman J. Christopher Giancarlo said in a statement.

London-based LCH Ltd. would be the only overseas clearinghouse to fall under CFTC oversight because more than 20 percent of its business comes from US firms.

The EU law enacted in March has frustrated Giancarlo, US clearinghouses and banks, and lawmakers from both parties.

The European Market Infrastructure Regulation, also known as EMIR 2.2, is aimed in large part at London-based LCH in an effort to subject the giant clearinghouse to EU oversight after Brexit.

But the law also would potentially subject US-based clearinghouses to supervision by the EU, the UK and the US.

European regulators have requested public input on implementation of the law, leaving a great deal of latitude for its interpretation.

“The next steps must be taken by Europe,” said US Representative Michael Conaway, the top Republican on the House Agriculture Committee. “I encourage the European Commission to consider these proposals and work with incoming Chairman Tarbert to find a reasonable implementation of EMIR 2.2 that maintains our healthy, global derivatives markets.”

Former US Treasury official Heath Tarbert is set to replace Giancarlo as CFTC chairman this month.

CME Group and the Intercontinental Exchange have expressed concern about overlapping regulation and new fees.

“It’s a regulatory grab,” CME Chief Executive Terrence Duffy said of the EU rule at a House hearing last month. “They’re looking to become regulators for the world.”

Giancarlo also has repeatedly admonished the EU for stepping on US authority over its clearinghouses.

Democratic Representative David Scott, chairman of a House Agriculture subcommittee on commodity exchanges, expressed outrage about the EU law at last month’s hearing.

“This is an insult to the American people,” he said. “There will be a very strong and adequate response to this. We’re not going to put and make our financial services industry be turned into second-class citizens on the world financial stage. You can bet on that.”

Fintech Regulation in 2018