February 10, 2016
I fully support the decision announced today. I commend Chairman Massad and CFTC staff for having worked tirelessly and in good faith with their European counterparts to end a regulatory stalemate that should have never come about in the first place.
Today’s decision avoids unacceptable changes to four decades of U.S. clearinghouse margin policy and higher costs of hedging risk for America’s farmers, ranchers, financial institutions, energy firms and manufacturers.
The truth of the matter is that this dispute was totally contrary to the cooperative spirit of the 2009 G-20 Pittsburgh Accords and should have been avoided. It was triggered by the previous CFTC administration acting unilaterally to impose U.S. trading requirements on participants in overseas markets and on non-U.S. participants in American markets. Those requirements had little to do with insulating U.S. markets from systemic risk and more to do with increasing the regulatory jurisdiction of the CFTC. European regulators rightly viewed these requirements as a massive regulatory overreach.
Compounding the institutional unilateralism, the equivalence determination process was made more complex because both the European Commission (EC) and CFTC essentially held each other’s regulatory text up to the ceiling light to determine if the words and font sizes were identical. This line-by-line rule analysis is contrary to the OTC Derivatives Regulators Group approach, which states that a flexible, outcomes-based approach, based on a broad category-by-category analysis, should form the basis of equivalence or substituted compliance.1 With respect to future regulations borne out of the financial crisis, and there are many, the EC and CFTC must work together to implement an equivalence and substituted compliance process based on common principles in order to increase regulatory harmonization and reduce market balkanization.
The current state of the global economy, rightfully characterized as “the new mediocre,” cannot bear the reduction in trade and increased fragmentation of financial markets that results from flawed or uncertain regulatory policy. Flourishing capital markets are the answer to 21st century economic woes, not currency wars, regulatory arbitrage and protectionism. We must reduce regulatory uncertainly and political risk in world financial and derivatives markets in order to foster a return to global economic growth and prosperity.
1 See also IOSCO Task Force on Cross-Border Regulation, Final Report (Sep. 2015) (advocating for an outcomes-based approach as opposed to a line-by-line comparison of rules).
Last Updated: February 10, 2016