Qualified Multilateral Trading Facilities
Substituted compliance was at the heart of the Commission’s effort in March of this year when we announced relief from registration for qualified trading venues in Europe (QMTFs). This effort was the product of considerable work and collaboration with our European colleagues and represented progress on accomplishing the goals set out in the Path Forward.
The Commission provided time-limited, transitional relief to QMTFs that have sufficient pre- and post-trade price transparency requirements; and provide non-discriminatory access to market participants. The relief is also conditioned on foreign trading platforms meeting certain regulatory requirements of their home jurisdictions.
Some have suggested that the reason there is not a QMTF currently operating pursuant to this effort is because the conditions were not calibrated appropriately. I disagree. The most agile platforms were able to adopt standards to comply with these conditions within the extended time frame provided by the Commission, but either chose not to or pursued a different regulatory course.
A better explanation for the lack of uptake is that last year many global financial institutions restructured their operations in a way that made the relief less useful given its timing.
We continue to work with the FCA on resolving issues to improve the practical impact of the relief, but the Commission should not diminish its own SEF framework or its regulatory standards solely to ensure a trading venue overseas can attract liquidity from U.S. participants. To do so would potentially invite regulatory arbitrage that does not benefit the swaps marketplace in the long run, and could harm the competitive standing of the U.S.
Importantly, I also have directed Commission staff to develop a rulemaking to set out a process for foreign-based swap trading platforms to seek appropriate regulatory treatment under U.S. law. The Commission also should follow the IOSCO technical committee’s recommendations, where applicable, in developing that framework. Together with the QMTF relief, these actions exemplify putting into practice the comparability framework articulated in the Path Forward statement.
Similarly, and further to the goal of developing a comparability framework, I have directed CFTC staff to develop regulations to set forth a process for recognizing foreign clearinghouses under authority provided by Congress in Dodd-Frank.
As the last meeting of the Global Markets Advisory Committee made plain, there are important issues for the global regulatory community, to address and resolve in this context. In particular, balancing the desire for mutual recognition, with each country’s interest in its own customer-protection regime, will be perhaps the most critical policy decision. This is another topic that has been under active discussion with our European colleagues for many months, and another issue that deserves a heightened level of attention and care.
Europe and the US Must Lead the Way
As the CFTC moves forward with the reporting, clearing and swap-trading mandates in the United States, it must and will continue to work with its counterparts in Europe and elsewhere around the globe to meet the G20 commitments. At the same time, regulatory authorities in Europe and elsewhere must likewise continue to implement all G-20 commitments in a coordinated way. Toward that end, the Commission will continue to work closely to assist where appropriate with the European Commission’s own equivalency analyses, another topic of active discussion this year.
In conclusion, I expect continued focus on international coordination, especially with respect to treatment of foreign-based clearinghouses and execution facilities for swaps, in the coming weeks. The Commission has consistently demonstrated leadership in this regard. Market participants and policy makers around the globe rightly expect that leadership to continue — both in implementing rules to protect the integrity of the markets, as well as take actions to correct any inadvertent effects.
Thank you again inviting me and your interest in these important issues.