U.S. regulator would welcome delay of EU clearing rules

Wed Sep 10, 2014 1:13am EDT
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By Douwe Miedema

WASHINGTON (Reuters) - A top U.S. regulator said on Wednesday he would welcome a delay by the European Union that gave more time to resolve a conflict with Washington over making derivatives markets safer.

Reuters reported last week that the EU is discussing whether to move a deadline by which U.S. clearing houses, which act as go-betweens for buyers and sellers, must meet EU rules when doing business there.

"I am encouraged by that flexibility ... it's very important as we deal with this not to disrupt the market," Tim Massad, the head of the Commodity Futures Trading Commission derivatives regulator, told Reuters in an interview.

At the moment, Europe is sticking to its own rules for U.S. clearing houses rather than exempting them as it plans to do with Japan, Hong Kong and Australia, for example. Brussels has refused to grant similar treatment to the United States as long as the CFTC does not exempt European clearing houses.

The current deadline is December 15, after which new capital requirements kick in, making it prohibitively expensive for European banks to do business with U.S. clearing houses.

"I expected it would be maybe easier to get this done," Massad said. "(It's) an exercise we're going through now. And I'm willing to explore (whether the U.S. can rely on EU rules to a greater extent)."

Swaps are derivatives that were originally designed to protect companies and investors against financial risks. However, their use ballooned in the heady days leading up to the 2007-09 financial crisis when speculators started jumping into the then unregulated market.

They can be packaged into highly complex transactions, and they played a major role during the financial meltdown as insurance firm American International Group Inc (AIG.N: Quote) suffered massive losses when risky derivatives bets went sour.   Continued...

U.S. Commodity Futures Trading Commission Chairman Timothy Massad testifies about Wall Street reform before a Senate Banking Committee hearing on Capitol Hill in Washington September 9, 2014. REUTERS/Jonathan Ernst