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Watchdog suggests EU take less rigid view of foreign derivatives rules
[LONDON] The European Union may need to be less rigid in its approach to dealing with financial rules from outside the bloc to avoid disputes with other countries, the EU's top markets regulator said on Friday.
The EU's executive European Commission and US Commodity Futures Trading Commission (CFTC) have been at loggerheads for months over whether to recognise each others' rules for making markets for financial derivatives safer in the wake of the 2007-2009 financial crisis.
Europe and the United States have developed their own rules for derivatives and if these are deemed "equivalent" then European banks can continue using US clearing houses to support their derivatives trading without incurring punitive capital charges.
The bulk of the world's US$630 trillion derivatives market is traded in London and New York.
But the Commission has repeatedly delayed a decision on whether US rules are "equivalent" or as strict as EU rules.
"We fully support the concept of relying, as regulators, on each other's supervision. That is very important in a global market," Steven Maijoor, chairman of European Securities and Markets Authority (ESMA) said.
But he questioned if a "yes or no" approach to whether the US rules were as good as those in the EU was the best way forward.
Mr Maijoor told a hearing in Brussels: "For example, should you have or consider a more granular assessment for these equivalence decisions? To what extent can we effectively assess the supervision executed by foreign regulators?"
Mr Maijoor said part of the solution would be to have more detailed rules agreed at the global level in future to avoid differences emerging on the ground later on.
Earlier this month, the European Commission clashed with CFTC chairman Timothy Massad in Brussels. He told EU lawmakers that the US rules provided better overall protection.
Thomas Book, chief executive of Eurex Clearing, part of Germany's Deutsche Boerse, said he still supported EU rules even though it meant that margin payments (to support trades) would be 40 percent higher in Europe than in the United States. The difference will not benefit the European economy, Book said.
Since his visit to Brussels, Mr Massad has repeated his assertion that the US rules are superior. The Commission is looking to push back its decision deadline on the US rules by six months to December.
Several speakers at the hearing, including Mr Book, Mr Maijoor and Graham Young, head of clearing house policy at the Bank of England, said it was too early to make wholesale changes to EU derivatives rules, parts of which have yet to be fully rolled out.