EU and US strike deal on derivatives

Agreement ends months of deadlock.

The European Commission today (11 July) struck a deal with regulators in the US over how to deal with derivatives traders, averting a situation that could have caused chaos in financial markets.

The agreement, with the Commodity Futures Trading Commission (CFTC), brings to an end many months of difficult negotiation over how derivatives traders based in one jurisdiction should be treated when operating in the other.

“Our discussions have been long and sometimes difficult, but they have always been close, continuous and collaborative talks between partners and friends,” Michel Barnier, the European commissioner for the internal market, said.

The saga demonstrates the difficulties involved in trying to introduce new financial regulation on either side of the Atlantic when markets are international.

The two sides will now recognise each other’s rules in most cases; a situation that regulators hope will allow trading without too much legal conflict and regulatory burden.

“As the market subject to these regulations is international, it is acknowledged that, notwithstanding the high degree of similarity that already exists between the respective requirements, without co-ordination, subjecting the global market to the simultaneous application of each other’s requirements could lead to conflicts of law, inconsistencies, and legal uncertainty,” a statement from the European Commission said.

Gary Gensler, the chairman of the CFTC, said: “With these joint understandings, together, we’ve taken another significant step in our mutual journey to bring transparency and lower risk to the swaps market worldwide.”