European regulators are laying the groundwork for a derivatives market that will lead to greater benefits for non-European banks, according to Kim Taylor, president of CME Clearing. Taylor made the commnts at the International Derivatives Expo in London today as EU regulators continue to stall in their authorisation of non-EU clearinghouses.
Taylor said that the failure of the European Securities and Markets Authority to approve non-EU clearinghouses as equivalent will mean that after the December 15 deadline, EU investment banks will see their capital requirements under Basel III increase 30 times if they facilitate customer trading of listed derivatives through non-European clearinghouses. “The European authorities are setting up a boom for non-European banks to achieve business,” Taylor said.
Non-EU clearinghouses are currently offered relief from EU-rules under the Capital Requirements Directive IV, but this relief expires on December 15. ESMA has 180 days to approve non-EU clearinghouses after equivalence is determined. “There are some 120 days between now and December 15 and there’s no equivalence. So ESMA is already operating 60 days in the red.
Nobody can take a 30-times capital hit, even for 60 days,” Taylor said. Taylor said that European banks will be at the disadvantage of all the other banks because they won’t be able to hedge with the same ability of access points. “I suspect that their customer franchise will suffer because if their customers want to use other futures exchanges other than those on European soil, there are plenty of other providers who can offer that service,” Taylor said.
Hans-Ole Jochumsen, president of global trading and market services at NASDAQ OMX, said that the problem lies with the US rather than Europe. “The US will not agree with our rules,” Jochumsen said. “All of us need to push them to try to agree, because it is possible. Europe has shown that 28 countries can agree on one set of rules for Europe. The US needs to be a little more flexible.”
On the same ‘Transforming Clearing’ panel, Paul Swann, president and managing director of ICE Clear Europe, was given the opportunity to respond to comments by the CFTC yesterday (/article/lr80vyj3k1xt/cftc-slams-clearingequivalence-efforts) that he should clear some swap and futures products in the US to bypass cross-border issues entirely. “We’ll do what our customers want,” Swann said. “It shouldn’t really be driven by regulatory demands.”
