WASHINGTON, Feb 1 (Reuters) - The main U.S. derivatives regulator on Monday urged the European Commission to quickly finish its work on “equivalence,” which would allow European companies to use U.S. clearinghouses for swaps when new EU bank rules come online later this year.
Clearinghouses act as go-betweens, holding collateral and taking other measures to ensure that neither side of a deal is caught short. But Brussels and Washington have been locked in negotiations over whether their clearing rules are equivalent, specifically whether U.S. regulations are as strict as European ones.
Many firms have warned that a lack of equivalence could fragment a global swaps market worth hundreds of trillions of dollars.
The European Union’s new requirements for big banks to clear their interest rate swaps take effect in June, expanding demand for U.S. clearinghouses and adding pressure to sync up regulations.
“It is important that a determination of equivalence happen soon, particularly because the European clearing mandate is scheduled to take effect in a few months, and it’s important that we avoid market disruption,” Commodity Futures Trading Commission Chairman Timothy Massad said in a speech before the Commodity Markets Council.
He added that one of his counterparts, European Commissioner Jonathan Hill, shares his concern, “so I’m hopeful they will act and a determination will be issued soon.”
In the speech laying out the CFTC’s priorities for the year, Massad said it will continue to focus on building up clearers’ “strength and resilience,” in a way “that supports the liquidity of these markets.”
That includes developing stress-testing standards and working on recovery and resolution planning.
The U.S. monitor for financial stability said last week it was putting clearinghouses under its microscope because they can pose contagion and contamination risks.
Also on Monday, the CFTC announced it had issued a conditional registration for Eurex Clearing AG , one of the largest clearinghouses in Europe, to provide services for swaps in the United States.
Massad said the CFTC, currently consisting of three members instead of the full complement of five, will also scrutinize trade options and position limits. He hopes it will soon finalize regulatory changes for both. For position limits, he said the CFTC is “listening closely” to concerns about hedging.
Massad also said CFTC staff is researching industry concerns about peaking supply and capacity contracts, which businesses use to ensure they have enough of a commodity on hand for manufacturing or electricity generation. (Reporting by Lisa Lambert; Editing by Matthew Lewis)
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