SEC delay risks market disruption, FIA says
On March 15, the European Commission adopted the long-awaited decision on the equivalence of the Commodity Futures Trading Commission’s clearing rules, paving the way for U.S. clearinghouses to seek recognition in the European Union and easing uncertainty around cross-border trading between Europe and the U.S.
The decision means that clearinghouses registered with the CFTC can seek recognition from the European Securities and Markets Authority. Market participants will be able to use them to clear over-the-counter derivatives, while the clearinghouses will remain subject solely to the regulation and supervision of the CFTC. In addition, these clearinghouses also will obtain “qualifying CCP” status under the EU’s Capital Requirements Regulation. As a result, EU banks that are members of these CCPs will be subject to a lower risk weight in calculating their regulatory capital requirements.
The equivalence decision only applies to clearinghouses regulated by the CFTC, however. Clearinghouses regulated by the Securities and Exchange Commission have not yet been deemed subject to equivalent regulation, in part because the SEC has not yet finalized its standards for clearinghouses that are subject to SEC regulation. These clearinghouses include the OCC, which is the principal clearinghouse for the U.S. equity options markets, and the National Securities Clearing Corporation and the Fixed Income Clearing Corporation, both of which are subsidiaries of the Depository Trust and Clearing Corporation.
For that reason, FIA sent a letter to SEC Chairman Mary Jo White on April 26 stressing the importance of quick action on its standards for these clearinghouses, which have been pending since March 2014. Without these standards, these clearinghouses cannot be recognized in Europe, and EU banks will not be able to remain members of these clearinghouses without facing a steep increase in their capital requirements, FIA warned.
“FIA believes that finalization of these standards should be a priority for the SEC as further delay risks substantial market disruptions,” FIA President and CEO Walt Lukken said in the letter. “Without such standards, clearing members that are located in the European Union may no longer be able to access covered clearing agencies regulated by the SEC, and until such time, may be subject to punitive capital requirements.”
