The main US derivatives markets regulator has agreed to rein in its rules for regulating overseas clearing houses, in a move Washington hopes will ease a stand-off with counterparts in Europe.
A proposal was passed unanimously at a meeting of the Commodity Futures Trading Commission in Washington late on Thursday. By a narrow vote, the five commissioners also agreed to let overseas clearing houses that are exempt from US standards accept business from US citizens.
Chris Giancarlo, the outgoing CFTC chairman, outlined his proposals last year, arguing the Obama-era standards had sometimes over-reached their jurisdiction and were increasingly out of step with the rest of the world.
Its move comes amid increasing tension with counterparts in Brussels over the possible extraterritorial reach of each others laws for the global derivatives market. The EU wants to tighten standards for overseas clearing houses, which safeguard the financial system by acting as counterparties between sellers and buyers of shares or derivatives.
They are aimed largely at London because it is the hub of the euro-denominated swaps market. But US policymakers fear the scope of the rules could challenge their authority over their own market. Previously overseas clearing houses serving US citizens were also required to be directly regulated by the US as well as their home regulator.
The revised CFTC rules will allow local regulators to monitor overseas trading venues and clearing houses handling US-related business, when those watchdogs had standards comparable to US rules and they did not pose a risk to the US financial system. Immediately the CFTC announced it had signed a bilateral deal with Japanese authorities to allow US swap dealers to trade in Japan.
“This re-establishes trading links between two of the largest swap communities in the financial system; New York and Tokyo,” said Mark Brickell, chief executive of Clear Markets, which runs electronic swaps trading platforms in Japan and the US. “When companies need to manage risk it is helpful to be able to do so across national borders, or oceans.”