Regulators Issue Report to the G20 on Cross-Border Derivatives Regulation (with Lofchie Comment)

OTC derivatives regulators in Australia, Brazil, the European Union, Hong Kong, Japan, Ontario, Quebec, Singapore, Switzerland and the United States issued a report regarding common understandings to improve the cross-border implementation of OTC derivatives reforms. The report reflects a number of substantive understandings to improve the cross-border implementation of OTC derivatives reforms, including the following:

• Early and comprehensive consultation among relevant authorities when equivalence or substituted compliance assessments are being undertaken is essential.
• A flexible, outcome-based approach should form the basis of final assessments regarding equivalence or substituted compliance assessments.
• A "stricter-rule" approach would apply to address gaps in mandatory trading or clearing obligations.
• Authorities have a framework for consultation on mandatory clearing determinations.
• Jurisdictions should remove barriers (1) to reporting to trade repositories by market participants and (2) to access to trade repository data by authorities.
• There should be appropriate transitional measures, and a reasonable but limited transition period, for foreign entities to implement OTC derivatives reforms.

Lofchie Comment: There is nothing in the way of actual detail in the report as to how derivatives regulation will be implemented. One might read the requirement that the various jurisdictions adopt "consistent" rules as being inconsistent with U.S. developments to date, but, obviously, that did not prevent the U.S. from agreeing with the document. Perhaps this will signal a shift to a U.S. policy of trying to achieve greater global regulatory consistency, or it might be just a statement of goodwill that is quickly forgotten. The document's emphasis on the significance of mandatory clearing is disappointing. The mandatory clearing of plain-vanilla interest rate and currency transactions will not make the economy materially safer. The failure to clear rate and currency transactions had nothing to do with the financial crisis.

See: CFTC Notice.