* Transatlantic tug-of-war over derivatives continues
* EU holds out on recognising U.S. rules
* EU's Barnier calls for reciprocity in rules
By Huw Jones
LONDON, June 27 The European Union said it will
help build a seamless global market in financial derivatives by
accepting rules used in five countries, adding the United States
would get the green light too if it showed flexibility.
After the 2007-09 financial crisis in which derivatives like
credit default swaps played a key part in creating uncertainty,
countries across the world have introduced rules to make the
market more transparent and safer.
Market participants like clearing houses, third parties who
help complete trades safely, want to avoid the costs of having
to comply with multiple jurisdictions as well as their home
However, rules proposed so far by the EU and U.S. differ in
several ways and neither side wants to be seen as backing down
in making key changes.
On Friday, the EU's financial services chief Michel Barnier
said he would accept that derivatives rules for clearers from
Japan, Singapore, Australia, Hong Kong and India are equivalent
to the bloc's own rules.
This means that clearing houses or CCPs from these five
countries can clear EU derivatives contracts without the added
cost of complying with European rules as well.
"Global derivatives markets need worldwide standards and
national rules that work together seamlessly," Barnier said in a
Most of the world's $700 trillion derivatives contracts are
traded in London and New York, and Barnier said "equivalence"
decisions for the United States and other countries should
This would depend on the U.S. derivatives regulator, the
Commodity Futures Trading Commission (CFTC) accepting that EU
rules are as good as its own, a step it has been wary of taking
"If the CFTC also gives effective equivalence to third
country CCPs, deferring to strong and rigorous rules in
jurisdictions such as the EU, we will be able to adopt
equivalence decisions very soon," Barnier said.
Last year regulators from the EU and United States signed up
to the "Path Forward" agreement, a pledge to make their
derivatives rules mesh better and avoid fragmenting the sector.
The International Swaps and Derivatives Association or ISDA,
a global industry body, has said if the EU does not accept U.S.
rules as equivalent, European banks would not be allowed to act
as clearing members of any CCP in America.
EU bank capital rules would also stop European lenders from
holding less capital to cover exposures to non-equivalent
"Together, these rules could have a devastating impact on
the business of any non-equivalent clearing houses," ISDA said
in a recent note.
How margin is applied to derivatives contracts is a key
difference between EU and U.S. rules but Barnier was "confident"
that margin requirements could be aligned to avoid "arbitrage
A CFTC commissioner, Scott O'Malia, wrote to Barnier last
month, urging him to "proceed with all diligence" to find the
U.S. regulatory regime equivalent.
Some European regulators are worried the CFTC will bar
non-U.S. clearing houses from taking on U.S. customers, making
it harder for the EU to agree to equivalence.
(Reporting by Huw Jones; Editing by Sophie Hares)