European financial regulators recently completed a review of Europe’s financial regulations and updated the Markets in Financial Instruments Directive (MiFID).
While a global effort to shore-up financial regulatory rulebooks is underway, Europe is lagging the United States by about 18 months. That is presenting unique challenges and opportunities according to Futures and Options Association CEO Anthony Belchambers. Three areas where divergence is evident are the treatment of major swap participants, swap execution and the Volker rule.
“In the EU, [major swap participants] will not be pulled into full regulation on the basis of the size of your exposure, but on the nature of your business,” he says. “Are you conducting business with third-parties and swaps derivatives as part of your business? That still will be the test.”
Rather than the use of swap execution facilities (SEFs), the EU is leaning toward a version called organized trading facilities (OTFs). “That means our version of OTF captures a wider range of platforms than U.S. SEFs. That may mean there will be a greater variety of venue diversity over here. We also don’t have the restraints on ownership that the U.S. does on SEFs,” Belchambers says.
Finally, Belchambers says the EU is not pursuing the same push-out rules to proprietary trading as the United States pursued. “They believe that the sort of differentiated capital rules will bring about some degree of separation with some of the mid-sized banks deciding to pull out from proprietary trading.”