September 19, 2019 / 9:32 AM / a month ago

UPDATE 1-U.S. derivatives watchdog calls on EU for more trust

(Adds more detail)

By Huw Jones

LONDON, Sept 19 (Reuters) - The European Union should provide clarity on when it will intervene in a foreign clearing house for derivatives to avoid potentially impeding cross-border co-ordination among supervisors, a senior U.S. regulator said on Thursday.

Dawn Stump, a commissioner at the U.S. Commodity Futures Trading Commission, said the EU should put more trust in the home regulators of foreign clearing houses or central counterparties (CCPs) that serve customers from the bloc.

“We must acknowledge that no single regulator is capable of overseeing markets in every corner of the world,” Stump told a conference held by global derivatives industry body ISDA.

CCPs stand between two sides of a trade, ensuring its safe completion even if one side of the deal goes bust.

New EU rules would give the European Securities and Markets Authority (ESMA), powers to directly supervise foreign clearing houses on their home turf in some instances.

U.S. regulators want the EU to “defer” to a clearing house’s home watchdog.

Stump said tests that ESMA will use for deciding when to intervene were “subjective”.

The CFTC has set out what Stump described as objective U.S. tests for determining when the CFTC should intervene in a clearing house based outside the United States.

Stump said cross-border regulation of clearing houses was a “two-way street”, based on trust and cooperation as set out at the Group of 20 economies (G20) Pittsburgh summit in 2009.

That summit was during the worst global financial crisis in decades and agreed on a requirement to clear as many derivatives contracts as possible to boost transparency.

This led to sharp growth in clearing houses that now handle trillions of dollars in contracts, making them a risk to financial stability if they got into trouble.

The EU has repeatedly defended its clearing house rules, saying they are similar to the U.S. system and are needed to ensure the bloc’s financial stability in a crisis.

“Trust and deference are critical for regulating cross border CCPs,” Stump said.

The EU rules are largely aimed at London, home to the world’s biggest clearing house LCH, ahead of Britain’s departure from the EU.

But U.S. regulators are worried that large clearers based in the United States like ICE and CME could get snared as well. (Reporting by Huw Jones; Editing by Deepa Babington and Tom Hogue)

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