February 10, 2016
I am pleased that we have agreed upon a common approach regarding requirements for central clearing counterparties (CCPs). This approach, once fully implemented, will permit U.S. and European CCPs to continue providing clearing services to entities in each other’s jurisdiction. Doing so will ensure that our global derivatives markets remain robust, while keeping our financial system as stable and resilient as possible. Additionally, it is a significant milestone in harmonizing regulation of our derivatives markets.
I want to thank Commissioner Hill and his staff for engaging with me and the CFTC staff in such a constructive and collaborative manner. And I want to express my deepest appreciation to the small but dedicated number of CFTC and European Commission personnel who worked tirelessly to reach this agreement.
CCPs play a critical role in the global financial system – one that has only become more prominent since the reforms agreed to by the G-20 Leaders in 2009. The agreement we have reached today will help ensure that they remain strong and resilient. It means that CCPs on both sides of the Atlantic will be held to high standards and that the CFTC and European authorities will work together on oversight of these CCPs.
Our announcement today comes after detailed and careful analysis to determine how best to reach a common approach. That analysis showed that, with respect to customer accounts, U.S. requirements typically result in more margin being available at the CCP to protect against losses. As a result, ESMA is consulting on whether the EU should move to allow EU CCPs to use the U.S. model. And with respect to accounts of clearing members, the analysis showed that certain EU standards result in more margin than the corresponding U.S. standards. Therefore, U.S. CCPs will harmonize with the EU requirements in this respect. We also agreed to an exception for U.S. agricultural commodity derivative contracts because of their significant nexus with the U.S. economy and their importance to U.S. farmers and ranchers.
Finally, CFTC staff will propose to the Commission a “substituted compliance” determination that will permit European CCPs to comply with many of our rules by adhering to the corresponding EMIR requirements.
Just as we seek to ensure CCPs are strong and resilient, I know Commissioner Hill shares my desire to make sure the commercial firms who rely on these markets to hedge routine risk—and who were not responsible for the global financial crisis—can continue do so effectively and efficiently. I believe today’s agreement is consistent with that concern.
It is critically important to implement this common approach so as to avoid any market disruption, and we have agreed on the steps necessary in this regard. I look forward to recognition of U.S. CCPs in a timely manner, so that market participants can continue to engage in cross-border transactions on both EU and US CCPs.
I look forward to continuing to work with Commissioner Hill, the European Commission, ESMA and our colleagues in other jurisdictions around the world as we continue to implement reforms that are so important to our businesses, markets – and the entire global financial system.
Thank you, and with that I’d be pleased to take your questions.
Last Updated: February 10, 2016