Solutions to regulatory differences between the US Dodd Frank Act and the European Commission's proposal, in particular in ensuring equal conditions for market access for EU and third country central counterparties (CCPS) [Note]

Abstract

This paper examines the legislative and regulatory proposals by the United States and the European Commission to increase regulation of the over-thecounter derivatives (OTC) market by requiring more OTC derivatives to be traded on exchanges and electronic trading platforms and to shift the clearing of these instruments away from opaque bilateral structures to centralised clearing through transparent and regulated central counterparties (CCPs). These proposals are designed in substantial part to control systemic risk in wholesale capital markets and in particular in the OTC derivatives markets, which was a source of the systemic risk that toppled Lehman Brothers in 2008 and nearly caused the collapse of the European and US financial systems. The paper suggests that the proposed EU Regulation has in key areas different prudential regulatory requirements for CCPs than what the US has proposed so far and therefore this could potentially create market access problems for CCPs based in the US seeking access to the EU market. But the EU and US proposals are at an early stage and future convergence remains possible. Other issues addressed concern the type of ownership model for CCPs and the role of the European Central Bank in overseeing CCPs.