Ongoing efforts to achieve equivalence with US derivatives rules could further delay the EU’s move to mandatory clearing—and that of other smaller jurisdictions. Barry Hadingham, Aviva Investors UK, explains. Comments based on a recent DerivSource video interview.
The path to mandatory clearing has already been long. It is generally expected to come into force next year, and the majority of the industry is eager to see it implemented, and move on. Maintaining focus and budget allocations to regulatory change over a number of years is very difficult. However, there is a concern that further delays to implementation may be possible, as global regulators attempt to reach consensus on how rules will be applied in cross-border transactions. In global markets, equivalence between different jurisdictions—particularly ones as important as the EU and US—is crucial.
In May, EU commissioner Lord Jonathan Hill and CFTC Chairman Timothy Massad announced they were in discussions to seek equivalence between their two jurisdictions. “As home to the world’s two largest derivatives markets, we are committed to ensuring financial stability by ensuring an appropriate treatment of risks, as well as ensuring market participants can operate cross border in a global marketplace,” they said in a statement. However, their target of finalising an approach by the end of the summer was not met. Failure to reach an agreement before mandatory clearing goes live, could lead to yet more delays.
These delays also affect other G20 jurisdictions—as well as non-G20 countries such as Singapore. Not wanting to have their derivatives rules potentially conflict with those in Europe or the US, these jurisdictions must wait until Europe has actually implemented mandatory clearing and the final rules are in place, before they can move ahead. However, once clearing goes live in Europe, it could trigger a wave of new clearing regulations in other smaller jurisdictions.
* Barry Hadingham is head of derivatives and counterparty risk at Aviva Investors, UK. To watch the full interview, please go to the DerivSource YouTube channel
