By Douwe Miedema
WASHINGTON Feb 12 The U.S. derivatives
regulator said on Wednesday that Wall Street banks can trade on
European platforms that are not registered with the U.S., a
decision expected to mainly affect the London market.
The Commodity Futures Trading Commission's announcement came
just days before tougher rules governing the $630 trillion
unregulated derivatives markets will take effect. The markets
were at the center of the recent financial crisis, and the
agency is now forcing much of the trading onto regulated
platforms in an effort to make them safer.
The rules, which go into effect on Monday, require U.S.
banks to trade certain groups of swaps on exchange-like
platforms registered with the CFTC. The agency's decision on
Wednesday made clear that they can keep trading on foreign
platforms even if they are not registered in the U.S., as long
as the rules in the platform's country are as stringent as those
of the CFTC.
"Focusing on Europe, it is our understanding that the issue
of U.S. participation on swap trading venues is ... confined to
the UK," CFTC Acting Chairman Mark Wetjen said.
The decision had been anticipated by London firms, which do
the bulk of the business with U.S. banks. Only swaps broker ICAP
sent in registration paperwork for its London unit to
avoid any risk of noncompliance, according to a person familiar
with the matter.
The CFTC rules have caused a row in Europe, which lagged
behind the U.S. in establishing similar regulations. The CFTC
expects the UK's Financial Conduct Authority to have rules
comparable to its own in place by March 24.
The CFTC and the European Union's financial services czar
Michel Barnier jointly issued Wednesday's announcement, which
was part of a 2013 pact laying out how each jurisdiction would
deal with compliance issues.
In December, U.S. banks sued the CFTC over the so-called
cross-border rules, arguing that U.S. had no jurisdiction over
what they do abroad. In that same month, the CFTC granted
foreign banks a reprieve from some of its new rules for risky
derivatives, a deal that did not go far enough in the eyes of
the European Union.
The new U.S. rules require dealers to set aside capital and
margin, and much of trading needs to be done through so-called
clearing houses to protect the risk if a buyer or seller goes
bankrupt, which could cause a market rout.