Europe recognises US and Japan derivatives rules

European regulators have agreed to recognise new rules laid out by the US and Japan to tighten derivatives trading as global authorities continue to build a framework to police the hedging tools blamed for exacerbating the financial crisis.

The European Securities and Markets Authority (Esma) said on Tuesday it had proposed to recognise as equivalent the rules drawn up by the US and Japan that were designed to meet a delayed mandate by the G20. The rules Esma wants to recognise include the use of clearing houses and trade repositories, as well as requirements for non-financial counterparties and risk mitigation techniques for uncleared trades.

Agreement between the US, Europe and Japan, the authorities policing the three markets that account for the vast bulk of trading OTC derivatives, would mark a significant step. Four years ago global policy makers pledged to shore up systemic risk in markets by moving more over-the-counter derivatives trading on to trading venues, with more deals backed by collateral and processed through clearing houses. Although most countries missed the end-2012 deadline, both Japan and the US have already mandated clearing of swaps trades.

"A similar approach by other regulators would give us something approaching a global regime," said Edmund Parker, a partner at Mayer Brown, a London-based law firm. "You're not going to get a perfect fit in many areas but you can take the more pragmatic approach, which is what Esma has done," he added.

Esma has been assessing the equivalence of a number of regulatory regimes from large financial centres around the world.

It found those governing the clearing houses of Australia, Switzerland, Hong Kong, Japan, Singapore, and the US as equivalent to EU rules.

The US met all of Esma's equivalence tests, as did Japan. However Esma said it had not issued technical advice for the recognition of trade repositories from Japan as the Japanese Financial Services Agency told its European counterpart that no trade repositories in Japan intended to apply for recognition under European market infrastructure regulation (Emir).

This week Mark Carney, chair of the Financial Stability Board, highlighted co-operation between regulators across national borders, or potential extraterritorial legal reach, as one of the biggest concerns for market participants.

Earlier this year the European Commission and the Commodity Futures Trading Commission, the main US derivatives regulator, made a breakthrough when they agreed to recognise each others' derivatives rules. "It's good progress, but it's not fully done," Mr Carney said this week. "It has to be translated on to the ground. We need to get as many other regulators signed up to a similar approach."

The Esma recommendations must be approved by the European Commission before coming into force.

© The Financial Times Limited 2013. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation