Cross Border en Industry urges EU to extend relief for cross-border intragroup transactions <span>Industry urges EU to extend relief for cross-border intragroup transactions</span> <span><span lang="" about="/user/97" typeof="schema:Person" property="schema:name" datatype="">Kirsten-FIA</span></span> <span>Fri, 12/03/2021 - 17:32</span> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p>On November 17, 2021, FIA joined ISDA and four other trade bodies (the European Association of Co-operative Banks, the European Banking Federation, the Global Financial Markets Association and the Nordic Securities Association) and wrote to the European Commission and European Supervisory Authorities to request they extend the current temporary derogations from clearing and margining requirements for intragroup transactions where at least one group entity is in a non-EU jurisdiction.</p> <p> </p> </div> Fri, 03 Dec 2021 17:32:04 +0000 Kirsten-FIA 3720 at FIA submits comments on second reading of China’s draft Futures and Derivatives Law <span>FIA submits comments on second reading of China’s draft Futures and Derivatives Law</span> <span><span lang="" about="/user/71" typeof="schema:Person" property="schema:name" datatype="">Tom-FIA</span></span> <span>Wed, 11/24/2021 - 12:54</span> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p>FIA has submitted comments on the second reading draft of the “Futures and Derivatives Law of the People’s Republic of China” (the “Futures and Derivatives Law”) to the Standing Committee of the 13th National People's Congress. FIA congratulates the NPC on the publication of the second reading draft of the Futures and Derivatives Law which is a key step in establishing a robust legal framework for China's futures and derivatives markets.</p> <p>FIA is extremely encouraged to see that <a href=";;sdata=Ix3DaXFOHzZ2uQ%2B6Y0ByQm4qPooDyVIlUu%2FKZ2kkYfg%3D&amp;reserved=0">many of its key observations</a> on the first reading draft have been reflected in the second reading draft. These include:</p> <ul> <li>confirming settlement finality for futures transactions, ensuring that a cleared futures transaction will be final and conclusive and not liable to be set aside in any bankruptcy proceeding;</li> <li>extending settlement finality protection to the bankruptcy of futures clearing institutions;</li> <li>and extending protections for futures clearing, such as for settlement finality and collateral enforcement, to central clearing of derivatives transactions.</li> </ul> <p>FIA strongly believes that by taking on board these critical changes, the Futures and Derivatives Law will provide comprehensive protections for futures and derivatives transactions in China and will lay a solid foundation for the ever-growing Chinese financial markets.</p> <p>FIA has also offered some observations and considerations for policymakers in China, including:</p> <ul> <li>Finality – with the finality concept being a cornerstone for a robust clearing system, FIA strongly suggests that all material aspects of both futures and derivatives clearing and settlement should benefit from express finality protections.</li> <li>Client clearing for futures transactions and derivatives transactions – FIA suggests that settlement between a clearing participant and its clients should also be protected for settlement finality.</li> <li>Close-out netting between clearing participants and clients – FIA requests that recognition for close-out netting arrangements be extended to cover close-out netting between a clearing participant and its clients notwithstanding the bankruptcy of any client of the clearing participant.</li> <li>Regulatory Deference – FIA respectfully suggests that policymakers in China consider applying a “substituted compliance” principle when regulating cross-border activities.</li> </ul> <p>FIA looks forward to the publication of the Futures and Derivatives Law, which will be a key milestone in the history of futures legislation in China and a fundamental step towards the establishment of a sound and comprehensive legal framework for China's futures and derivatives markets.</p> <p>FIA would like to thank the China Securities Regulatory Commission once again for its continued advice, guidance, and insight.</p> <p>FIA previously submitted <a href=";;sdata=tLn1TVsrBAj4Ap%2F8r7YtEIQv0wpZ4gn9A6qquP2wiFE%3D&amp;reserved=0">comments</a> in support of the first draft, and FIA President and CEO Walt Lukken added <a href=";;sdata=GWSdx%2BcUpD%2FXcDaICVHPYWapapAugG6vWtYpY6kmz%2BE%3D&amp;reserved=0">commentary</a> about the upcoming futures law and what it means for the global marketplace.</p> </div> Wed, 24 Nov 2021 12:54:44 +0000 Tom-FIA 3711 at CEPS discussion - More time needed to build up clearing capacity in the EU <span property="schema:name">CEPS discussion - More time needed to build up clearing capacity in the EU </span> <span rel="schema:author"><span lang="" about="/user/72" typeof="schema:Person" property="schema:name" datatype="">Jeff-FIA</span></span> <span property="schema:dateCreated" content="2021-11-18T12:08:52+00:00">Thu, 11/18/2021 - 12:08</span> <div property="schema:text" class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p>Getting the balance right on euro clearing could take a few years as the European Union works to improve the attractiveness of clearing and encourage infrastructure development in the bloc, a top European Commission official said.</p> <p>The European Commission announced on 10 November that it will extend its temporary equivalence decision for UK CCPs, allowing London-based clearinghouses to continue serving customers in the EU beyond next June to help avoid "a cliff edge".</p> <p>While the length of the proposed extension was not disclosed, the extra period will give the Commission time to introduce measures aimed at expanding the bloc's capacity in clearing and to reform supervisory arrangements to reduce "a risky over-reliance" on a third country.</p> <p>Euro clearing has become a politicised subject after Brexit, with London's LCH still clearing about 90% of all euro-denominated derivatives according to a <a href="" target="_blank">recent white paper</a> from Brussels think tank CEPS.</p> <p>"We went from a situation where we were fairly balanced in terms of our internal/external clearing activity [pre-Brexit], to a world where we are not very balanced at all," said John Berrigan, director general of the Commission’s financial services division, speaking at an <a href="" target="_blank">event held by CEPS</a> on 16 November.</p> <p>"We now fall into the category of over-reliance on external provision for clearing services, which raises the question about medium-term vulnerability," he said.</p> <p>"We have to find that balance between what the market will want in terms of liquidity and what the market will bear in times of stress in terms of financial stability. That balance, we'll have to work on in the next few years."</p> <p>Berrigan added that the EU's objective should not be seen in narrow terms of stealing business from the UK to set up its "own EU-centric shop".</p> <p>"It is much broader than that," he said. "This discussion of CCPs also has its position in the discussion around the Capital Markets Union and building a broader, deeper capital market for Europe."</p> <p>Before deciding on the length of the UK CCP equivalence extension, the Commission is waiting for a report from the European Securities and Markets Authority, due by the beginning of 2022. </p> <p>The ESMA report is expected to include findings on whether UK Tier 2 CCPs or some of their clearing services are of such substantial systemic importance that they should not be recognised to provide certain clearing services or activities in the EU.</p> <p>Speaking at the CEPS event, ESMA’s Froukelien Wendt, an independent member of the CCP Supervisory Committee, said ESMA will provide an assessment of the systemic importance of the UK CCPs and cost-benefit analysis, including the effect of cutting off EU market participants' access.</p> <p>"Suppose we identify that the UK CCPs or maybe some of their clearing services are of substantial systemic importance, in other words, they're so important for the EU that we don't have the right tools to manage these risks that we cannot recognise them. What would then be the cost and benefits for the EU?" Wendt said.</p> <p>"While there are costs of a non-recognition, there are also benefits and they relate to the ability of EU supervisors, EU authorities, especially in times of crisis, to access information and to be able to intervene effectively," she said. "If you balance that benefit with all the different costs, how does that weigh? That is not for me to mention at this stage, that is something for the relevant EU authorities to decide."</p> <p>ESMA's assessment will be fundamental in providing visibility into risk handling and the costs of fragmentation of liquidity, said Danuta Hübner, member of the European Parliament's ECON Committee at the event.</p> <p>"It will also take us closer to answering the fundamental question on whether we can ensure a credible, stable, efficient financial system like most market infrastructures in other jurisdictions," Hübner said. "The list of accompanying questions of course is long, including one on whether Europe can have a global relevant currency without a powerful clearing system and also, from another perspective, whether you can have a stable credible system based on a location policy."</p> <p>Berrigan said the Commission will wait for the outcome of the ESMA assessment and see what measures might be required to move clearing and how long would be needed to implement them while minimising costs and stability risks.</p> <p>"What we want to do is achieve our objective without creating short-term problems. It won't be my decision [on how long the extended equivalence will be], but what I can say is we will want to leave ourselves enough time to get the job done in an efficient and safe way," Berrigan said.</p> <p>A video of the discussion can be <a href="" target="_blank">viewed here</a>.</p> <p>The CEPS report, 'Setting EU CCP policy – much more than meets the eye’, which calls for a long-term vision for the future of the European clearing market, can be <a href="" target="_blank">accessed here</a>.</p> </div> Thu, 18 Nov 2021 12:08:52 +0000 Jeff-FIA 3708 at Derivatives industry cautiously optimistic on UK clearing proposals <span property="schema:name">Derivatives industry cautiously optimistic on UK clearing proposals</span> <span rel="schema:author"><span lang="" about="/user/97" typeof="schema:Person" property="schema:name" datatype="">Kirsten-FIA</span></span> <span property="schema:dateCreated" content="2021-11-12T14:36:29+00:00">Fri, 11/12/2021 - 14:36</span> <div property="schema:text" class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p>The derivatives industry has received the Bank of England's <a href="">proposals</a> on the tiering and supervision of non-UK central counterparties with cautious optimism.</p> <p>Unveiling the proposals <a href="">at an FIA event</a> on 8 November, the Bank of England's Christina Segal-Knowles, executive director for financial market infrastructure, said non-UK CCPs offering services to UK-based clients will fall under a new tiering regime that will rely on the strength and reliability of cooperation and information sharing arrangements with home authorities.</p> <p>"A key feature of our approach to tiering is an 'informed reliance test'," said Segal-Knowles.</p> <figure role="group" class="align-right"> <div data-embed-button="media_entity_embed" data-entity-embed-display="entity_reference:media_thumbnail" data-entity-embed-display-settings="large" data-entity-type="media" data-entity-uuid="4081a064-6bb2-4180-adeb-85ecec95ea87" data-langcode="en" class="embedded-entity"> <img src="/sites/default/files/styles/large/public/2021-11/Christina%20Bruce.jpg?itok=3KvRXidp" width="480" height="134" alt="Bruce and Christina" loading="lazy" typeof="foaf:Image" /> </div> <figcaption>Bruce Savage and Christina Segal-Knowles</figcaption> </figure> <p>"Where a jurisdiction has a robust regulatory and supervisory framework and is clearly committed to meeting our expectations with respect to cooperation, trust and information sharing, we will deem that CCP Tier 1. In other words, we will not bring that CCP into direct UK supervision, provided that we can see on a continuing basis that its home regulators are delivering the outcomes we need to protect UK financial stability."</p> <p>Reaction to the Bank's proposals has generally been positive. Damian Carolan, partner - financial services regulation at Allen &amp; Overy, said the proposals were "well-considered" and attempt to address industry concerns voiced during the EU's development of its regime for the supervision of non-EU CCPs.</p> <p>"Safety and openness are at the heart of the UK proposals," Carolan told MarketVoice. "But equally, there is a clear recognition of the cross-border nature of CCP business and the importance of maintaining that with cooperation and proportionality at the heart of delivering that in practice."</p> <p><strong>Cooperation-centric</strong></p> <p>When the UK left the EU, it onshored EMIR 2.2, the EU's market infrastructure regulation, and transferred the responsibility for tiering, recognising and, where needed, supervising non-UK CCPs to the Bank of England. HM Treasury, meanwhile, has assumed responsibility for the equivalence process in deciding whether overseas authorities have the same standard of supervision as the UK.</p> <p>"Contrary to any rumours about divergence, we are implementing EMIR 2.2," Segal-Knowles told FIA's head of Europe, Bruce Savage, who moderated the discussion. "The Bank has taken on the responsibility to set the policy for how we will determine which CCPs pose systemic risk to the UK, and it is those policies on which we are consulting today."</p> <p>She added that in designing its policies, the Bank's guiding principle was "safe openness", with three key features to its approach.</p> <p>The first is that the regime is designed to be risk-based, with size as the starting point. The Bank will consider supervising a non-UK CCP directly, meaning it will place it in the Tier 2 category, if the CCP has more than a £10 billion threshold of initial margin holdings or £1 billion in default fund contributions from UK clearing members, or any interoperability arrangements with UK counterparts.</p> <p>However, Segal-Knowles emphasised that this was the starting point, which is where cooperation, the second feature of the Bank's approach, comes into play.</p> <p>The Bank will undertake an "informed reliance assessment" to consider to what extent it is able to rely on home regulation and supervision, and the strength and reliability of cooperation and information sharing arrangements in place with the home authority.</p> <p>Segal-Knowles highlighted this as notable in the Bank's approach. "Putting cooperation at the centre allows us the opportunity to think not just about the risks posed by size, but also the risks on a more holistic and net basis," she added.</p> <p>Where a jurisdiction is committed to meeting expectations regarding cooperation and information sharing with respect to a large CCP, the Bank will deem that CCP Tier 1, meaning it will remain under home authority supervision. </p> <p>Those that do not meet these expectations would be classified as Tier 2 and would either be subject to direct supervision by the Bank or granted "comparable compliance" with supervision from their home authorities, as outlined in a separate <a href="">consultation paper</a> published the same day.  </p> <p>While a third tier, where international CCPs are subjected to a location policy, is technically part of the framework of the onshored EMIR 2.2., Segal-Knowles said the Bank is not contemplating the use of a Tier 3 category currently.</p> <p>She added that the consultation includes a table showing the criteria that will be used for the tiering model to provide predictability.</p> <p>"It's not just that we're applying some level of judgement and are able to move CCPs around in our tiering system," she said. "It's that we're providing a way to take a more holistic net risk approach to tiering."</p> <p>The third feature of the Bank's approach is proportionality. The Bank will have higher expectations of cooperation from home authorities of CCPs where the UK proportion of total initial margin or default fund contributions is greater than 20%. </p> <p>Julia Smithers Excell, a partner in the financial services regulatory team at law firm White &amp; Case, said that while the proportionality feature of the Bank's tiering approach is welcome, the focus of firms and their regulators will likely be on the Bank's informed reliance assessment of regulators' ongoing commitments to meet relationship expectations.</p> <p>"They will also focus on the list of key criteria for these which the Bank has set out in its consultation and will likely note the Bank's comments that the list is non-exhaustive and that it may take other relevant considerations into account," Smithers Excell said.</p> <p>At the event, Segal-Knowles also discussed how the UK fares as the home supervisor of some of the world’s largest CCPs.</p> <p>"The UK has long been recognised as a world leader in the regulation of clearing services, and we have time and time again stressed that we are committed to maintaining at least the current levels of resilience for CCPs," she said. "Our plan is not to weaken but strengthen that regime."</p> <p><strong>EU clearing stance </strong></p> <p>In remarks outside the prepared speech, Segal-Knowles addressed the controversy surrounding the EU's stance on clearing, which aims to shift euro clearing to the continent from the UK.</p> <p>"It's important that these things are not politicised," she said, adding that the UK will operate in "a very technocratic and predictable way."</p> <p>On 10 November, Mairead McGuinness, European commissioner for financial services, announced that the EU will extend its temporary equivalence decision allowing European banks to access UK CCPs beyond June next year to help avoid "a cliff edge".</p> <p>Her announcement <a href="">was welcomed by FIA</a> and industry participants who had previously <a href="">warned</a> the Commission about the negative financial and operational impacts on EU counterparties and clearing members if it allowed the equivalence decision to lapse.</p> <p>While the length of the proposed extension was not disclosed, McGuinness said it "should be long enough to allow us to revise the EU supervisory system for CCPs" to encourage more activity to move into the bloc. McGuinness plans to propose the extension in early 2022.</p> <p>The UK's LCH still clears about 90% of all euro-denominated derivatives, according to a recent <a href="">white paper</a> from CEPS, a Brussels think tank, which cited market data provided by Osttra.</p> <p>"This proposed way forward strikes a balance between safeguarding financial stability in the short term…and safeguarding financial stability in the medium term – which requires us to reduce this risky over-reliance on a third country," McGuinness said.</p> <p>Speaking about the approaches the EU and the UK have taken on cross border clearing, Carolan says both jurisdictions endorse similar underlying principles of international openness and safety. However, he adds that the "mood music" surrounding those concepts is very different.</p> <p>"The EU still expressly aspires to significantly enhanced onshore EU CCP infrastructure as a key part of its preferred solution. The UK on the other hand expresses a more holistic attempt to support and regulate cross-border CCP services effectively by way of cooperation and suitable oversight, whichever direction of travel the business takes."</p> <p>Savage said on the webinar that FIA supports the overall goal of ensuring clearing services to UK market participants are appropriately regulated and supervised and will be responding to the consultation on behalf of members.</p> <div style="width: 100%; margin-left: 20px; margin-right: 10px; margin-bottom: 10px; padding: 10px; background-color: #F8F8F8"> <p class="MsoNoSpacing">A video of Christina Segal-Knowles' presentation on the Bank of England's proposals and her conversation with FIA's head of Europe, Bruce Savage, can be <a href=";;sdata=G6Uf074oHSI48hoOh9A7uynDn51dm3VlUnAJjFOwuYM%3D&amp;reserved=0">viewed here</a>:</p> <p>The Bank's consultation on its approach to tiering incoming central counterparties under EMIR Article 25, can be <a href=";;sdata=UAS%2F%2FwIIVAzxZdU3xF8TysU5oVb91qWigWvfbb6BJug%3D&amp;reserved=0">accessed here</a>.</p> <p>The Bank's consultation on its approach to comparable compliance under EMIR Article 25, can be <a href=";;sdata=kMlL3q%2B4kLAQF%2FRTpd9LM9%2BpvXE1tA73cXaj4gMizdQ%3D&amp;reserved=0">accessed here</a>.</p> <p>The consultations close on 25 February 2022.</p> </div> </div> Fri, 12 Nov 2021 14:36:29 +0000 Kirsten-FIA 3702 at FIA statement on Commissioner Mairead McGuinness comments on central clearing <span>FIA statement on Commissioner Mairead McGuinness comments on central clearing</span> <span><span lang="" about="/user/72" typeof="schema:Person" property="schema:name" datatype="">Jeff-FIA</span></span> <span>Wed, 11/10/2021 - 18:43</span> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p>London, UK—FIA today issued the following statement on Commissioner Mairead McGuinness <a href=";;sdata=GtshPOUmQ86D30utuPN3d0637MXlibmp2hqftKSOeXc%3D&amp;reserved=0" originalsrc="" shash="qLZgUr3VlnDSu61B4wEhoB89fmF85caXsfj1N0yvDLbWKmydFqlebN1t0jwJizt/cmW1sYanHfEyiRJsK7/P7a4bWgLsqVijAlUqDVAoytwQC3w6IXEFD7ntUdZWS9xEei3Bx7TShHx4CbLq3JSaRwmShauE9KMVwcVnHg7Xg5I=">announcement</a> on the proposed way forward for central clearing:</p> <p>“FIA welcomes today’s announcement by Commissioner Mairead McGuinness that the European Commission will propose an extension of equivalence for UK CCPs in early 2022 to safeguard financial stability and avoid a cliff edge for EU market participants. FIA is pleased that the Commission has listened to industry concerns and provided early clarity to prevent negative financial, commercial and operational impacts on EU counterparties and clearing members. This will enable continued access to global pools of liquidity. FIA supports the growth of competitive, efficient and safe markets globally, and we look forward to working with the Commission in 2022 on measures to grow EU financial markets,” said FIA Head of Europe Bruce Savage.</p> </div> Wed, 10 Nov 2021 18:43:19 +0000 Jeff-FIA 3699 at Trading Technologies adds another futures broker to China network <span property="schema:name">Trading Technologies adds another futures broker to China network </span> <span rel="schema:author"><span lang="" about="/user/72" typeof="schema:Person" property="schema:name" datatype="">Jeff-FIA</span></span> <span property="schema:dateCreated" content="2021-09-27T19:57:11+00:00">Mon, 09/27/2021 - 19:57</span> <div property="schema:text" class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p>As Chinese futures exchanges gradually increase the number of contracts that can be traded from abroad, technology providers to the global futures industry are extending their services to support inflow of trading interest. </p> <p>In the latest example of the trend, Trading Technologies International is expanding the number of brokers connected to its network that can provide direct connectivity to Chinese futures exchanges.  </p> <p>The Chicago-based provider of trading systems, which is widely used by professional traders in the futures industry, announced a partnership with COFCO Futures on 26 September. The two companies said the partnership will support access via TT's trading screens to certain products listed on China's futures exchanges, including futures on iron ore, crude oil, fuel oil and palm olein. A TT executive said COFCO is the eighth broker on its network that provides connectivity to China's exchanges and added that several more partnerships are "in the works." ;</p> <p>COFCO Futures is jointly owned by COFCO Capital, the investment arm of the state-owned agribusiness group, and China Life Insurance Company. The futures broker is a full member of all five Chinese futures exchanges and can offer both trading and clearing services to international customers.</p> <p>The COFCO-TT partnership will support access to certain contracts that the China Securities Regulatory Commission, the country's primary regulator of futures markets, has opened to international trading. These include the crude oil, fuel oil, copper and rubber contracts listed on the Shanghai International Energy Exchange; the iron ore and palm olein contracts listed on the Dalian Commodity Exchange; and the purified terephthalic acid contract traded on the Zhengzhou Commodity Exchange.</p> <p>Mark Pottle, TT's regional executive sales director, called the partnership with COFCO "another huge step in cementing TT's commitment to China." Over the last two years the technology company has announced similar partnerships with four other brokers: <a href="" target="_blank">Huatai Futures</a>, <a href="" target="_blank">Xinhu Futures</a>, <a href="" target="_blank">Zhengzhou Esunny Information Technology</a>, and the Singapore subsidiary of <a href="" target="_blank">Shanghai Orient Futures</a>.</p> <p>Heyi Zhong, director of the institution services department of COFCO Futures, commented that his firm is looking forward to providing trading access jointly with TT as well as clearing services for international investors and professionals.</p> <p>Allowing international participants direct access to futures on China's exchanges is a key step in the government's <a href="" target="_blank">goal of internationalizing its financial markets</a>. The move is also part of China's bid to have more of a say in <a href="" target="_blank">pricing major commodities sold to Asia</a>. The country is the world's largest importer of iron ore—the key feedstock in steelmaking—and the world's biggest importer of crude oil, plastics, soybeans and rubber. </p> <p>Other trading system providers are pursuing similar strategies. For example, CQG, the Denver-based provider of trading systems, <a href="">has signed up 14 onshore China brokers</a> to its network and supports access to all five Chinese futures exchanges. And Pico, a rapidly growing provider of technology services for financial markets, <a href="" target="_blank">set up a subsidiary in Shanghai in June</a> to support clients seeking to access Chinese markets.  </p> <p> </p> </div> Mon, 27 Sep 2021 19:57:11 +0000 Jeff-FIA 3648 at FIA releases principles for cross-border regulation <span>FIA releases principles for cross-border regulation</span> <span><span lang="" about="/user/73" typeof="schema:Person" property="schema:name" datatype="">Adrienne-FIA</span></span> <span>Mon, 09/27/2021 - 18:41</span> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p>London, UK—FIA today released a policy paper outlining seven principles to guide the regulation of cross-border activity in the derivatives markets. FIA is issuing the paper to address the threat of market fragmentation due to conflicts, inconsistencies, and duplication in cross-border regulation. Policymakers and regulators in many parts of the world are re-examining their approaches to cross-border activity, and some are favoring more insulated national policies that favor direct oversight of domestic and foreign entities. As FIA points out in the paper, these national approaches do not defer to home country regulation, and the resulting overlap of regulation on cross-border activity will lead to less efficient markets and higher costs for end-users.</p> <p>“For the last 40 years, our industry has relied on governments’ willingness to defer to the regulation of other jurisdictions to facilitate these cross-border connections. These recognition and equivalence regimes have worked extraordinarily well,” said FIA President and CEO Walt Lukken. “Yet, this proven system is facing new tests with the EU and UK having just completed their separation, a new administration in the US, and a Chinese market beginning to open to the world. It is critical that we remain vocal about finding the right approach to regulation that enables cross-border activity in our markets.”</p> <p>In recent months, FIA has observed several developments that have prompted policymakers and regulators to consider increased regulation of entities domiciled in or operating from foreign jurisdictions. These include:</p> <ul> <li>The separation of London’s financial center from the European Union</li> <li>New concerns about the supervision of OTC markets and clearinghouses</li> <li>China’s increasing integration in global financial markets</li> <li>Calls to develop new regulatory structures for digital assets</li> </ul> <p>FIA believes that as regulators grapple with these four developments, they should include reliance on comparable home country regulation as a core element of their regulatory response. This model, which has been applied to futures trading and clearing for generations, is a safe and efficient way to regulate entities that operate at a global level and markets that connect buyers to sellers at a global level.</p> <p>Many jurisdictions already use the reliance model for certain aspects of their cross-border regulation. To encourage greater use of this model, FIA has drafted seven principles to clarify how this model can be applied. These principles are: </p> <ol> <li>Determination of necessity</li> <li>Define outcomes</li> <li>Use of international standards as benchmarks</li> <li>Assess outcomes rather than rules</li> <li>Communicate with counterparts</li> <li>Adoption of measures</li> <li>Create mechanisms for ongoing cooperation</li> </ol> <p>“FIA plays an important role in advocating for rational cross-border equivalence regimes that are comprehensive, outcomes-based, and protective of the marketplace. This requires regulators to assess the genuine risk to the home country and determine whether the foreign regulatory regime comparably addresses that risk,” continued Lukken. “This should not be a line-by-line assessment but one that looks at regulatory results and international standards to measure equivalence. This recognition process, combined with robust information sharing, enhanced communication, and close coordination among regulators has helped our global financial system to thrive.” </p> <p>To illustrate the importance of cross-border activity to the derivatives markets, FIA gathered statistics from five leading exchanges on the percentage of their trading volume that originated outside of their home jurisdictions. As the chart below shows, cross-border trading accounted for large amounts of the total volume.   </p> <div data-embed-button="media_entity_embed" data-entity-embed-display="entity_reference:media_thumbnail" data-entity-type="media" data-entity-uuid="4c9734aa-df72-44fd-b7cb-8dad6d428961" data-langcode="en" class="embedded-entity"> <img src="/sites/default/files/2021-09/FIA_Cross-Border%20WP%20Chart_Final2.jpg" width="1514" height="1286" alt="Cross-Border Trading at Five Major Derivatives Exchanges" loading="lazy" typeof="foaf:Image" /> </div> </div> Mon, 27 Sep 2021 18:41:00 +0000 Adrienne-FIA 3646 at Joint trade association letter to EC on equivalence and recognition of UK CCPs <span>Joint trade association letter to EC on equivalence and recognition of UK CCPs</span> <span><span lang="" about="/user/71" typeof="schema:Person" property="schema:name" datatype="">Tom-FIA</span></span> <span>Thu, 09/16/2021 - 11:42</span> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p>Nine industry associations (AFME, AIMA, EAPB, EBF, EFAMA, FIA, ICI, ISDA, SIFMA AMG) – representing the broadest group of market participants – have written to European Commissioner Mairead McGuinness, respectfully requesting that the European Commission (EC) extend the EC equivalence decision for UK CCPs.</p> <p>This equivalence decision is set to expire on 30 June 2022, although the associations request the EC to provide clarity as soon as possible and well in advance of March 2022 in order to prevent negative financial, commercial, operational and level playing field effects on EU counterparties and clearing members and to enable continued access to global pools of liquidity after 30 June 2022.</p> <p>The letter can be downloaded <a href="">here</a>.</p> </div> Thu, 16 Sep 2021 11:42:05 +0000 Tom-FIA 3627 at FIA joins other trade associations to support US-China Phase One Trade Agreement <span property="schema:name">FIA joins other trade associations to support US-China Phase One Trade Agreement</span> <span rel="schema:author"><span lang="" about="/user/72" typeof="schema:Person" property="schema:name" datatype="">Jeff-FIA</span></span> <span property="schema:dateCreated" content="2021-08-06T11:50:59+00:00">Fri, 08/06/2021 - 11:50</span> <div property="schema:text" class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p>On 6 August, FIA co-signed a letter to US Treasury Secretary Janet Yellen and the US Trade Representative Katherine Tai expressing support for the continued implementation of the US-China Phase One Trade Agreement.</p> <p>The letter, co-signed by more than 20 other trade associations including the US-China Business Council and the US Chamber of Commerce, recognises the Chinese government for meeting important benchmarks and commitments that benefit American businesses, farmers, ranchers and workers – including a commitment to open markets to US financial institutions and financial service providers.</p> <p><a href="">Read the full text of the US-China Phase One letter.</a></p> </div> Fri, 06 Aug 2021 11:50:59 +0000 Jeff-FIA 3593 at Lukken remarks - Successful traits in global futures market regulation <span>Lukken remarks - Successful traits in global futures market regulation</span> <span><span lang="" about="/user/72" typeof="schema:Person" property="schema:name" datatype="">Jeff-FIA</span></span> <span>Thu, 07/15/2021 - 19:15</span> <div class="field field--name-body field--type-text-with-summary field--label-hidden field__item"><p><em>FIA President and CEO Walt Lukken made the following remarks at the 13th Lujiazui Forum International Symposium on the Rule of Law in the Financial Sector in Shanghai, China:</em></p> <p>I appreciate being invited to speak at this prestigious forum. For many years, I have been a supporter and admirer of the opening of China’s markets for the benefit of China and the world. Open markets promote economic growth, raise standards of living, and keep costs affordable. I applaud the recent publication of the Draft China Futures Law as a significant step in achieving this goal.</p> <p>In 2005, as a commissioner of the US Commodity Futures Trading Commission (CFTC), I delivered a speech in Shanghai on the opening of China’s markets entitled “Crossing the River by Feeling for Stones.”  I was referencing Deng Xiaoping’s pragmatic philosophy on how China needed to approach its economic opening in a cautious but intentional way. In that speech, I highlighted the importance of legal certainty, international cooperation, and regulatory flexibility in developing safe and growing futures markets.</p> <p>Since my speech 16 years ago, China has made steady but significant progress in crossing that river. In that time, China has loosened restrictions on its currency to increase the renminbi’s prominence on the global stage. China has opened ownership of Chinese firms to foreign participation and allowed foreign financial institutions to open offices on the mainland. China has liberalized the ability of foreign and domestic companies to make investments cross-border. It has also listed futures contracts open to foreign participation and established exchange “connect” pipelines to provide cross-border access to financial products.</p> <p>The publishing of a Draft China Futures Law is the latest step in crossing this river and will bring legal certainty and transparent rules to market participants wanting access to the Chinese derivatives markets. While FIA has submitted a comment letter offering specific recommendations for the Draft China Futures Law, today I want to highlight certain foundational characteristics needed in building a strong regulatory framework.   </p> <p>In my speech in 2005, I shared some of the reforms that the United States had implemented with the passage of its then new futures law, the Commodity Futures Modernization Act of 2000. That law implemented principles-based regulations for exchanges and clearinghouses to provide clear but flexible requirements on these regulated entities. It allowed exchanges to self-certify new products without regulatory approval to quicken the listing of innovative financial instruments. It provided legal certainty for over-the-counter derivatives that allowed for the clearing of these instruments for the first time. It also clarified the jurisdictional lines between the CFTC and Securities and Exchange Commission (SEC) for certain stock futures index products.</p> <p>This legislation laid out clear rules and a legal foundation for these markets that enabled an explosion of innovation and growth. Over the next twenty years, volumes on US futures exchanges grew by almost ten times, from 491 million contracts in 2000 to 4.4 billion in 2020. Equally important, the amount of customer funds held by futures brokers in the US rose by almost five times, from $60 billion in 2002 to $290 billion at the end of 2020. That is a testament to the confidence that customers have in both the legal foundation of this industry and the quality of its regulation. </p> <h4>Legal Certainty is Key</h4> <p>While there are many reasons for this ensuing growth, it would not have occurred without the legal certainty brought by the new law. When rules are vague or enforced haphazardly, market participants tend to avoid trading for fear of running afoul of the law or losing their investment. Today’s global financial institutions have sophisticated compliance programs that are designed to flag these risks and avoid such uncertainty. Given the economic stakes as well as the reputational risks, many firms will pass over markets that do not have clear and enforceable rules. </p> <p>The Draft China Futures Law will provide a comprehensive legal framework for the futures markets in China, forming a solid legal foundation for international financial institutions, investors, and end-users to participate in the Chinese financial markets. These markets already rank among the largest in the world in terms of trading volume but have lacked transparent legal standards and rules that are critical for deeper institutional participation. The Draft China Futures Law, once passed, will provide important legal certainty that will incentivize greater international participation.</p> <p>Crucially, the Draft China Futures Law also clarifies the availability of close-out netting for certain offsetting derivatives instruments, including close-out netting arrangements for futures clearinghouses. Derivatives contracts, by their nature, are hedging instruments that must be offset against each other during a default to mitigate further losses. Close Out Netting has always been a topic of great importance to market participants, given its impact on the capital treatment of firms. The importance of close-out netting has also been recognized by global regulatory bodies like the Basel Committee on Banking Supervision and IOSCO, who have developed capital and margin rules that provide advantages for firms in jurisdictions where netting is legally enforceable. We applaud China for addressing these legal clarifications around close-out netting and have suggested further clarifications in FIA’s comment letter to mitigate the risks surrounding this issue.</p> <h4>Regulatory Cooperation is Critical</h4> <p>Derivatives markets are global in nature. Transactions, clearing and settlement often take place in different countries and across different time zones and continents. Ultimately, market participants benefit from the deep pools of liquidity that form in these global markets.</p> <p>The enhanced legal and risk management framework underpinning the Draft China Futures Law brings the Chinese markets better in-line with international standards and places Chinese exchanges on a stronger footing to seek recognition by foreign regulators to allow more foreign customer participation.</p> <p>The Draft China Futures Law will be key when seeking equivalence and authorization for market infrastructure in other countries. Equivalence determinations require the benchmarking of laws and regulations against global standards. The final publication of the Draft Futures Law would greatly aid standard setting bodies, like IOSCO, or national authorities, as they look to deem China’s laws equivalent.</p> <p>Global listed and cleared derivatives markets today are grappling with the challenge of market fragmentation due to inconsistent and overlapping regulatory frameworks. Fragmentation reduces liquidity and competition in derivatives markets by creating barriers to market access and increasing the complexities of compliance. It also undermines the resilience of the clearing system by making it more difficult for clearing firms to operate on a global basis.</p> <p>The regulatory recognition and deference model has been the foundation of the futures industry for years. Reliance by regulatory authorities on agreed international standards and supervision by fellow regulators in other jurisdictions is the best way to prevent market fragmentation and ensure deep, efficient, liquid, and competitive derivatives markets. We strongly encourage China to support this recognition and deference model in tandem with the final passage of its Draft Futures Law.</p> <h4>Regulatory Flexibility Promotes Responsible Innovation</h4> <p>While clear rules of the road are important, markets are constantly evolving, and regulators must have flexible tools to keep pace with market changes. Most global regulators have specific authority to provide exceptions to rules as unique circumstances present themselves. These tools come in various forms, including “no action” letters, forbearance authority or exemptive authority, and typically have administrative procedures that accompany them to ensure fairness and transparency in the process. Regardless of form, they allow a pathway for market participants to request regulatory relief when circumstances justify an exception. I can tell you firsthand that the US CFTC utilizes these tools frequently to help market participants stay in compliance with the law and allow for evolution in the marketplace. FIA also requested that the European Securities and Markets Authority (ESMA) receive similar forbearance authority during its recent European Supervisory Authorities (ESA) Review. Given the pace of innovation and technological change, it would be helpful to have greater legislative clarity around the authority of Chinese regulators to grant exemptions under the Draft Futures Law.</p> <h4>Closing: </h4> <p>In closing, I want to congratulate China policymakers and the CSRC on the significant strides they have made in opening the Chinese markets to the world over the last two decades. I look forward to even more progress and development in the years ahead. Thank you.</p> <p><iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="315" src="" title="YouTube video player" width="560"></iframe></p> </div> Thu, 15 Jul 2021 19:15:11 +0000 Jeff-FIA 3570 at