The European Commission has now granted regulatory equivalence for the US central clearing counterparties, used in derivatives contracts, as those CCPs in the European Union.

Following their announcement last month, stating that the European Commission (EC) and the US Commodity Futures Trading Commission (CFTC) had agreed on common rules for central clearing counterparties (CCPs), the EC has now granted regulatory equivalence for the US CCPs as those in the European Union (EU).

The CFTC now has the equivalent requirements as the EU in regulating CCPs, so that both EU and US CCPs will operate to the same standards and at comparable cost to their participants. The move also enables US and EU CCPs to comply with one set of regulations, easing the compliance burden.

The EC is now waiting for the CFTC to reach a similar agreement to allow European CCPs to do business in the United States more easily.

This decision is important because it reduces risk in the financial system – one of the G20 goals following the 2008 financial crisis. CCPs play a key role in derivatives contracts, acting as buyer to every seller and seller to every buyer. The agreement will enable CCPs registered in the US with the CFTC to be recognised in the EU. These agreements are aimed at encouraging market certainty and cross-border activity, avoiding fragmentation of markets and liquidity.

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CTMfile take: This is an important move that will reassure all who use derivates contracts in the EU and the US.