CFTC and EU Reach Agreement on Regulation of CCPs (with Delta Strategy Group Summary)

The CFTC reached an agreement with the European Commission ("EC") on a common approach to requirements for central clearing counterparties ("CCPs"). A common approach was a prerequisite for the EC's adoption of an equivalence decision with respect to U.S. CCPs.

Under the agreement, EC will propose the adoption of an equivalence decision with respect to CFTC requirements for U.S. CCPs, which will allow the European Securities and Markets Authority ("ESMA") to recognize U.S. CCPs. At the same time, CFTC staff will propose a "determination of comparability" and conclude that a majority of the EU's requirements are comparable to those of the CFTC. This determination will provide a basis for EU CCPs that are already registered with the CFTC as derivatives clearing organizations and for those that seek registration in order to meet certain CFTC requirements by complying with the corresponding requirements set forth in European Market Infrastructure Regulation ("EMIR"). In addition, (i) CFTC staff will propose the streamlining of the registration process for EU CCPs; (ii) EU will propose the adoption of an equivalence decision under EMIR to determine whether U.S. trading venues are equivalent to regulated markets in the EU; and (iii) ESMA will continue consulting with EU CCPs on the possibility of applying an alternative standard for client margining that would allow them to meet CFTC requirements.

CFTC Chair Timothy Massad endorsed the approach. "[O]nce fully implemented," he said, it will "permit U.S. and European CCPs to continue providing clearing services to entities in each other's jurisdiction. Doing so will ensure that our global derivatives markets remain robust, while keeping our financial system as stable and resilient as possible. Additionally, it is a significant milestone in harmonizing regulation of our derivatives markets."

CFTC Commissioner J. Christopher Giancarlo noted that the prior impasse for clearinghouses was caused by the CFTC's previous efforts "to impose U.S. trading requirements on participants in overseas markets and on non-U.S. participants in American markets." According to Commissioner Giancarlo, those requirements "had little to do with insulating U.S. markets from systemic risk and more to do with increasing the regulatory jurisdiction of the CFTC. European regulators rightly viewed these requirements as a massive regulatory overreach."