We’ve crunched the numbers: the average US-based clearing firm needs to comply with nearly 2,000 unique, affirmative, regulatory obligations.1 Trading derivatives outside of the US? You can effectively double that—and adding another clearinghouse with its own set of unique rules imposes a significant cost on firms.
But there’s hope! Last week, CME Group’s Clearing house received permanent approval from the European Securities and Markets Authority (ESMA) to offer central counter party (CCP) services in the EU2 — a step that allows for cross-border derivative trading and simplifies the clearing process for many of the clearing members and industry participants who rely on CME’s services. This development stems from a recent MOU between European and US regulatory authorities (respectively, ESMA and the Commodity Futures Trading Commission, or CFTC) that allows CFTC-approved clearinghouses to operate legally in the European Union.
So what does this mean for US market participants?
Allowing US-based organizations to be recognized by European entities eliminates the need for duplication. Like CME, US entities can use their US-registered clearinghouses in Europe, thus avoiding the extremely expensive and lengthy process of setting up a second clearinghouse. These reduced costs will be passed down to clearing firms and, ultimately, to the end users that benefit from these efficiencies.
The ultimate benefit, however, is that users won’t need to grapple with regulations of a new clearinghouse in a different country because the efficiencies created through EU-US cooperation will keep the regulatory count stable . . . for now.
At Ascent, we know it’s a challenge to keep up with the ever-evolving regulatory landscape. That’s why we’ve developed solutions that can quantify all of your firm’s compliance obligations on an easy-to-use, modularized platform. To learn more about how Ascent can help you more effectively manage and report on your regulatory risks, please visit us at http://www.Ascent.is.
1 Our data-driven process estimates this figure at 1,993, which may increase or decrease depending on the regulatory bodies with which a given firm must comply.