As contemplated by announcements last month, the European Commission (EC) and the Commodity Futures Trading Commission (CFTC) took action this week to implement mutual recognition of derivatives trading venues in advance of the January 3, 2018 compliance date for the Markets in Financial Instruments Directive (MiFID II) requirement that the most liquid derivative instruments that are subject to mandatory clearing must be traded on regulated trading venues.
On December 5, 2017, the EC adopted an equivalence decision (Equivalence Decision) recognizing 14 US Designated Contract Markets (DCMs) and 23 US Swap Execution Facilities (SEFs) as eligible for compliance with the EU trading obligation for derivatives, which will shortly be introduced for certain interest rate swaps and index credit default swaps. On December 8, the CFTC issued an exemption order from the CFTC’s SEF registration requirement with respect to multilateral trading facilities (MTFs) and organized trading facilities (OTFs) authorized in the EU.
These actions permit EU counterparties to satisfy the EU trading obligation for derivatives through trading on the DCMs and SEFs that the EC has recognised as equivalent, which is now possible due to the Equivalence Decision. Equally, once the Exemption Order becomes effective from January 3, 2018, it will permit US counterparties to satisfy the CFTC’s trade execution requirement through trading on MTFs and OTFs, which will represent the first time that the CFTC will have permitted US persons to transact in swaps on non-US trading venues.
Valdis Dombrovskis, EC Vice-President in charge of Financial Stability, Financial Services and Capital Markets Union, remarked that, “European firms can continue trading in derivatives on US trading platforms and effectively hedge against risk, setting conditions for stronger growth in Europe. On the other hand, US firms can hedge their exposures on platforms, facilitating trade and exchange between the EU and the US.”
Christopher Giancarlo, Chairman of the CFTC, said, “These decisions, including all of their relevant conditions, are significant achievements, which should be enduring as they are essential to ensuring a strong and stable trans-Atlantic derivatives market that supports economic growth both in the European Union and the United States.”
The joint statement by the EC and the CFTC is available here.
The final text of the EC’s Equivalence Decision, and its annex setting out the enumerated DCMs and SEFs, is available here.
The joint statement by the EC and CFTC on the common approach is available here.
The text of the CFTC’s exemption order is available here.