Futures Industry Seeks Cross-Border Equivalence


One word kicked off the 34th Annual FIA Futures and Options Expo in Chicago: “deference.”

US Commodity Futures Trading Commission Chairman Christopher Giancarlo called for the regulator to replace its ad hoc approach to cross-border recognition with a holistic risk-based framework for the swaps market.

Giancarlo shared many of his thoughts in the whitepaper, which the CFTC released earlier this month, noting that the CFTC’s cross-border overreach might have made sense in 2013 when the other G20 regulatory jurisdiction had yet to implement their respective reforms, but not now.

Christopher Giancarlo, CFTC

“All of this is water under the bridge,” said he said. “Times have changed, markets have changed, and a new approach to cross-border of regulation is necessary.”

The CFTC could apply deference to regulatory changes like the regulation of swaps trading venues, clearinghouses, and wasps dealers.

The Futures Industry Association fully supports the Chairman’s approach that would avoid duplicate oversight without sacrificing important market and client protections but warned that it would only work if participating jurisdictions agree to abide by the highest of international standards, according to Walter Lukken, president and CEO of the FIA.

“A great first step would be the EU reaffirming its equivalence decisions for third country infrastructures, and the US using its exemptive authority to recognize trading venues and clearinghouses located outside of the US that do not pose a systemic threat,” said Lukken.

Few derivatives markets stop at their national borders as 43% of the CME’s metal contract volumes come from outside the US; 47% of the volume of ICE Futures’ agricultural business (including coffee, sugar, and cocoa) comes from overseas, and 90% of the SGX’s equities-derivatives volume comes from outside Singapore, according to FIA data.

Without similar regulatory approaches in place, the industry could find the markets fragmented further while facing balkanized regulatory regimes.

“In fact, this recognition approach has worked so well that FIA and SIFMA published a paper last December suggesting a parallel approach for swaps,” he added.

However, Chairman Giancarlo was optimistic that the new approach likely would bear fruit.

“The majority of regulators with whom I spoke welcomed the return to deference,” he said. “It was discussed favorably at last week’s G20 meeting in Bali. Many are expressing enthusiasm for regulatory coordination and want to seize the opportunity to put in place relevant laws, standards, and policies that reflect a path of deference.

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