On February 10, the Commodity Futures Trading Commission and the European Commission (EC) announced that they had reached an agreement on a harmonized approach to central clearing counterparties (CCPs). The agreement ensures that EU market participants will be able to continue to use CFTC-registered CCPs without incurring substantial capital changes.
Under the agreement, the EC will adopt an equivalence decision, which will allow CFTC-registered CCPs to provide services in the European Union by complying with US requirements. In order to be recognized as equivalent, a CFTC-registered CCP will be required to confirm its internal policies and procedures ensure: (1) initial margin collected with respect to clearing member proprietary positions is sufficient to account for a two day liquidation period; (2) initial margin models take into account and mitigate the risk of procyclicality; and (3) the maintenance of “cover 2” default resources. These conditions will not apply to US agricultural commodity derivatives traded and cleared domestically within the United States.
The EC will shortly propose to adopt a decision determining that US trading venues are equivalent to regulated markets in the European Union. Member states must vote on an equivalence decision before the decision is adopted by the EC. The EC will seek to ensure US CCPs are recognized as equivalent prior to June 21, the date on which the first central clearing requirements under the European Market Infrastructure Regulation (EMIR) become effective. To that end, the European Securities and Markets Authority (ESMA) also announced last week that it “will rapidly resume the recognition process of specific CFTC-supervised US CCPs that had applied to ESMA” to be recognized in the European Union. Under the European regime, recommendations to the EC on CCP equivalency determinations are first made by ESMA.
Concurrently, CFTC staff will propose a determination of comparability with regard to EU requirements, which will allow EU CCPs to provide services in the United States by complying with requirements under EMIR. The CFTC also will streamline its registration process for EU CCPs.
The joint announcement can be found here.
ESMA’s statement can be found here.