15 December 2017
Washington DC
Reporter: Jenna Lomax

SIFMA: US market requires improved CCP access

US industry associations are collaborating to improve market access to foreign central counterparties and trading venues in order to tackle market fragmentation through the Dodd Frank Act.

The Securities Industry and Financial Markets Association (SIFMA) and the Futures Industry Association (FIA) outlined proposals to promote the Dodd-Frank Act’s pre-trade transparency and systemic risk mitigation objectives in a joint whitepaper.

FIA and SIFMA believe that “now is the time for the CFTC to adopt a comprehensive framework to regulate cross-border trading and clearing of swaps”.

The associations agreed that the Commodity Futures Trading Commission’s (CFTC’s) allowance of an exemption for certain European derivative trading platforms, based on recognition of comparable regulation by the European Commission, would be a positive way forward.

To lessen fragmentation, the paper suggested that “a non-US swap trading venue or CCP would not be required to register with the CFTC, or obtain an exemption from registration, unless it permitted direct, un-intermediated participation by a US person (other than foreign branches of US banks), or directly solicited such US participation”.

FIA and SIFMA also suggested that the CFTC could, apply additional conditions to its derivatives clearing organisation registration exemptions it already has “if the CFTC determined that gaps between home country regulation, on the one hand, and direct CFTC regulation, on the other hand, presented the potential for direct and significant risk to the US within the meaning of Section 2(i)”.

As a first approach, the CFTC’s process for regulating non-US swaps trading venues and CCPs was through staff no-action letters and guidance adopted during the early stages of Dodd-Frank Act implementation in 2009.

The associations argued that this “led to several problems” and was not thorough enough in terms of regulating.

FIA and SIFMA said that the continuation of this approach would mean “US firms will face diminished hedging and investment opportunities, US firms might also miss out on the formation of the next important market before it is too late.”

The CFTC has adopted the European Commission’s process of conducting more robust mutual recognition of comparable regulation.

FIA and SIFMA said: “Mutual recognition is essential to preventing fragmentation between jurisdictions that apply overlapping mandatory trading or clearing requirements, such as the US and EU.”

It added: “We strongly support the decision by the CFTC and EC to adopt their new common approach.”

Conditions on these exemptions would apply only where necessary to comply with Section 2(i) of the Commodity Exchange Act to mitigate “direct and significant” risk to the US.

Kenneth Bentsen, SIFMA president and CEO said: "Dodd-Frank has been the law of the land for more than seven years. The time has come to stop rushing from one deadline to the next and, rather, develop a consistent and comprehensive solution to the challenges of cross-border trading that will stand the test of time."

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