The world’s derivatives markets saw more than $640 trillion in trading activity in the first six months of 2019 alone. At the heart of these global markets are clearinghouses known as central counterparties, where futures, swaps and options transactions are cleared and settled. The efficient and proper functioning of central counterparties is critical to the health of the global financial system and the economic well-being of the more than 770 million people in the EU and U.S.
Derivatives allow companies to hedge their risk, and they inform everything from pension returns and mortgage interest rates to the cost of milk and bread. As leaders of the commissions that regulate derivatives markets in the EU and U.S., we are both committed to establishing a harmonious relationship that achieves shared regulatory objectives while affording appropriate deference to home-country authorities.
This commitment to international regulatory comity remains of vital importance in the financial world after the global financial crisis—and even more so in the post-Covid future. The ever-changing financial, economic and even political relationships in our world constantly reinvigorate intense debate about where regulatory jurisdictions begin and end: Will the EU regulate derivatives clearinghouses that are dually registered in the U.S.? Will the U.S. continue to do the same to EU clearinghouses that are supervised under similar rules at home? We knew that going down this road aimlessly would continue to yield only a confusing and contradictory patchwork of regulations that would strain the global derivatives markets, to the detriment of our respective economies and consumers.
After refreshing the dialogue between our two sides more than a year ago, the EU and U.S. have now determined and are implementing a mutually beneficial set of steps that promise clear, predictable and sound regulation and supervision for derivatives central counterparties. We each have our respective mandates—EU authorities and the CFTC both have primary regulatory and supervisory authority over derivatives central counterparties domiciled in our jurisdictions and operating on our markets.
The fruit of our discussions is a means to balance the fulfillment of the EU’s objectives and responsibilities with deference and international comity as to CFTC supervision of U.S.-based central counterparties with European members. The EU further clarified its deference regime for foreign clearinghouses in 2019. This week it adopted detailed laws to implement this framework, focusing its attention on particular market segments that pose systemic risk to its financial system.