Banks are set to breathe a sigh of relief after the EU and US struck a deal to close a gap in global markets regulation that was on the brink of fracturing the $553tn derivatives business.
As Jim Brunsden and Philip Stafford report, the accord staves off the risk of massive disruption to swaths of financial institutions like banks and institutional investors when the first EU rules for clearing houses come into effect later this month, writes
Officials from the European Commission and its US counterpart, the Commodity Futures Trading Commission confirmed on Wednesday they had reached an agreement.
It will end three years of sometimes bitter talks and impasse over common standards for the derivatives market, a crucial piece of unfinished business mandated by world leaders after the last financial crisis.
The thrust of the agreement is that the EU will adjust some of its rules on the amount ofmargin customers must post at clearing houses, to bring its standards closer to those in the US. This will be done through discussions among European regulators.
In return theUSwill move towards the EU’s more stringent standards on the amount of margin held by banks at clearing houses, most likely through changes to the clearing houses’ rule books.
Among the last issues that needed to be resolved in the talks were the details of a partial carve-out from EU rules for derivatives contracts on US agricultural products.
The result is a tailored exemption that, for instance, would not apply to types of contacts that are already handled by European clearing houses.
The deal manages to address rule clashes without forcing either side to reopen its underlying legislation, something that could prove especially perilous in theUS, where the post-crisis Dodd-Frank reforms have become a hot topic in the presidential primaries.
Given the prolonged negotiations, the accord is likely to be seen as a significant achievement both by Jonathan Hill, the EU’s financial services chief, and Timothy Massad, head of the CFTC, who both inherited the problem from their predecessors.