Massad hails progress but predicts harmonisation will take time

Speaking at the FIA International Derivatives Conference in London, Timothy Massad talked about his surprise a year ago when the US had not been granted equivalence with other clearing houses by the European Commission.

Although there has still not been recognition of the US, Massad stated that there had however been progress.

“The fact is I believe we are making good progress. I expect that we will get there. Lord Jonathan Hill and I had a very good discussion last month. We sat at a small round table in case you are interested. We have resolved some issues, in particular the terms of substituted compliance in the application of U.S. law to European clearinghouses that must register with us. Our law does not require registration in all cases; it is only if a clearinghouse clears futures listed in the U.S. or clears swaps for U.S. customers. And I believe we have agreed on a good substituted compliance framework assuming we can resolve the other issues.

Moreover, I believe we have narrowed the other issues being discussed, and we have agreed to address those issues in a data-driven way – by agreeing on what analysis needs to be done to look at the potential effects of differences in our regulatory systems. In particular, we are looking at margin methodology issues with respect to futures. For those interested, I recently gave a speech to a committee of the European Parliament that describes the issues we are discussing in more detail.

I believe Lord Hill wants to resolve this soon, as I do, and we are working in good faith toward that end. I also believe we are both committed to resolving this without creating any disruption to the market, as evidenced by the European Commission’s further postponement of the imposition of capital charges.

Ultimately this is about adapting our regulatory frameworks to a new world, a world in which we recognize that because markets are global, and the swaps market in particular is highly mobile, risk can be transferred across borders easily and at the blink of an eye. It is also a world in which we have made clearinghouses more important, and therefore regulators must work together to oversee those clearinghouses. And part of what we are doing is figuring out whether differences in our respective regimes matter to the goal of fostering financial stability by creating the global framework of regulation that I discussed earlier.”

He further talked about efforts to collaborate on data and reporting working with the ECB:

“The success of any reporting regime depends on the availability of high quality, standardized data. That is especially true for the swaps market. There are around two dozen data repositories globally. And there are participants around the world who must report. So, here too, cross border cooperation and collaboration are vital.

We and the European Central Bank are leading important efforts in this area. We currently co-chair a global task force under the auspices of CPMI-IOSCO that is seeking to standardize data standards internationally. We are now focused on developing standards for data elements, the Unique Product Identifier and Unique Transaction Identifier. The group expects to issue technical guidance on the UPI and UTI in July and November of this year for public review and comment.”

Talking about whether it would be right to see the progress so far as glass half empty or full, Massad said:

“The fact is we are still a world where individual nations – or a union of nations – write the laws. Individual nations have their own legal traditions, regulatory philosophies, and political processes that shape those laws. In every area of financial regulation that I know of, there are differences, often very significant differences, in national laws and regulations. There will be differences here also.

And so I see a glass half full. We have achieved a great deal of harmonization already. And we will achieve more in the future. It takes time, it requires us continuing to work in good faith.”


To read the full speech, please click here.