CFTC Chairman Massad Discusses Swaps and International Harmonization of Regulations (with Lofchie Comment)

At MFA's "Outlook 2014," CFTC Chairman Timothy Massad delivered remarks that focused on cross-border international harmonization.

Chairman Massad stated that he shares many of the concerns of market participants about the potential for harm if the derivatives reforms adopted by different jurisdictions are not the same. He reminded market participants, however, that the OTC derivatives industry "grew up to be a global industry without any regulation," and that, inevitably, there will be differences between various G-20 nations. He noted that the CFTC plans to do more in the area of substituted compliance determinations, but that in order for it to do so, other jurisdictions must finish working on their rules.

With regard to the regulation of central clearinghouses, Chairman Massad called on the European Union to recognize U.S. clearinghouses as equivalent to theirs and to issue equivalence determinations. He argued in favor of the dual registration regime, which he said has worked in the past and offers a good approach because "central clearinghouses are even more important in the global financial system today as a result of the global reforms to the OTC swap market."

To facilitate the Europeans' recognition of U.S. clearinghouses, Chairman Massad explained, the CFTC has agreed to look into whether its rules can be harmonized further. He said that he is pleased with the European Commission's decision to postpone the imposition of higher capital charges on European banks participating in U.S. markets, which he suggested would have fragmented the market more than the existence of dual registration.

Lofchie Comment: Financial market participants are in a difficult position. Ordinarily, one does not expect the same set of laws to apply in the United States and Europe, and that's OK because one does not expect a firm to be subject to both U.S. and European requirements for the same activity. It is not OK when the same firm is subject to requirements for the same activity that are not only different but inconsistent. Accordingly, it is incumbent upon the various government regulators to reach an agreement on consistent rules, even if that agreement requires some delay in implementation.

See: Chairman Massad's Speech.