US and European regulators said they had reached a preliminary deal on Friday to recognise each others’ derivatives rules, a critical development that should avert any cross-border trading disruptions.
The deal is expected to be finalised by November, ahead of MiFID II rules which will dramatically overhaul the way stocks, bonds, commodities and derivatives are traded in the EU. Without any equivalence deal, US and European firms would not be able to trade derivatives between the two countries.
The US Commodity Futures Trading Commission and the European Commission said they had formally committed to treat each other’s rules as equivalent when Europe’s MiFID II rules come into effect in January.
Working together was the best way to ensure stability and resilience while avoiding market fragmentation and over-regulation, said European Commission vice president Valdis Dombrovskis.
“The commitment you see here today is a commitment to see this through to the end. I am confident we will resolve the remaining issues and finalise this before the January 3 deadline,” CFTC chairman Christopher Giancarlo told reporters at a briefing in Washington.
On Friday, the two regulators also said they had agreed to recognise each others’ rules for the treatment of collateral posted against swaps that are not processed by clearing houses. The deal means US and EU firms can trade swaps in each other’s markets but comply with their home rules, reducing regulatory duplication and trading costs.
“The announcement on trading and margin equivalence by the EC and CFTC is a very positive and important step forward in efforts to ensure robust and liquid global markets that enable firms to efficiently manage their risks through derivatives,” said Scott O’Malia, chief executive of global derivatives industry body ISDA.
But Friday’s agreement did not cover mutual acceptance of stock market rules, a step the industry said is also crucial to avoid market disruption when MiFID II comes into force.
Dombrovskis said at the Washington briefing that the EU and United States were working in an “open and cooperative” spirit on remaining issues like stock markets with the US Securities and Exchange Commission.
“We are confident also to resolve all remaining issues,” Dombrovskis said.