Head of US derivatives regulator warns of impact of euro clearing decision

The head of the US derivatives regulator has warned that Europe’s decision on its future policing of euro-denominated clearing would have an impact on the agency’s thinking as it committed to implementing president Donald Trump’s call to push US interests in financial markets.

Christopher Giancarlo, acting head of the Commodity Futures Trading Commission, said that he “did not envy” the choice his European counterparts faced as Brussels rethinks the way it recognises overseas clearing houses, which act as middlemen in trades and ensure a deal is completed in the event of a default. The UK’s departure from the European Union has sparked intense debate as most euro-denominated clearing of swaps like interest rates and credit derivatives is carried out in London.

Some policymakers in the EU are concerned that the bloc will not have direct oversight of risks outside its borders that affect EU market stability but market participants warn it will substantially raise costs, erect barriers around trading euro product and lead to an erosion of business to the US. The EU will outline its plans in late June.

Mr Giancarlo told the annual meeting of Isda, a trade association, in Lisbon that he did “not presume to tell those in Europe what they should do or what should be the outcome of important discussions between representatives on both sides of the Channel.”

However he noted:

To date, the US has not deemed a body of water – even as large as the Atlantic Ocean – as an impediment to effective clearing house supervision and examination. Given the closeness of the US and European derivatives markets, what Europe chooses to do on the supervision of clearing houses undoubtedly will inform the evolution of US regulatory policy for cross-border swaps clearing.

Mr Giancarlo also told the audience he was committed to embracing the principles of President Trump’s order to advance US interests in international financial regulatory negotiations. He said a recent review of regulations concluded that US rules for its swaps market “have put America at a disadvantage globally.” “Our regulatory framework must help to attract, rather than repel, global capital to US trading markets,” he said.

He also called for the supplementary leverage ratio, a bank-based capital charge set by the Basel banking committee, to be redesigned as it hit the clearing industry.