WASHINGTON, March 25, 2015— A House Agriculture subcommittee continued a series of hearings in advance of writing legislation to reauthorize the Commodity Futures Trading Commission (CFTC), which lapsed in September 2013, focusing today on complex rules for international markets.
Noting that derivatives markets have changed over the past five years in response to the passage of the Dodd-Frank Act of 2010, “the further into implementation we get, the more cross-border jurisdictional issues that seem to arise,” said Rep. Austin Scott, R-Ga., the chair of Commodity Exchanges, Energy, and Credit Subcommittee.
During today’s hearing, members of the subcommittee heard from market participants, including the Chicago Mercantile Exchange and National Futures Association. The subcommittee heard from a panel of end-users Tuesday.
“Among the most critical issues facing the Commission today is the potential for the United States to be denied status as a country whose regulations are equivalent to Europe’s,” said Terrence Duffy, president of the CME Group.
Duffy said the European Commission’s “discriminatory approach to US access to EU markets is creating significant competitive disadvantages for US markets and the participants that use those markets” and without an EU recognition of equivalence, US clearinghouses will not be able to clear EU-mandated derivatives.
He said this equivalency issue is causing disruptions to US futures markets because, without equivalence, the cost of clearing futures on US markets will increase significantly on June 15, 2015. Under EU laws, non-EU clearinghouses must be recognized as “qualified central counterparties” by this date. The European Commission must determine that the clearing regulations in the applicable non-EU country are “equivalent” to EU regulation.
Duffy further said that the CFTC “has many tools at its disposal” to combat EU exclusion and deny access to US markets.
Regarding the ultimate goal of the House Agriculture Committee’s CFTC reauthorization process, the subcommittee’s ranking member, Rep. David Scott, D-Ga., said the committee will focus on new legislation that mirrors the Customer Protection and End User Relief Act, passed last year in the House.
He said the legislation, H.R. 4413, addressed several issues raised by market participants, including the E.U.’s recognition of U.S. clearinghouses, the U.S. recognition of foreign clearinghouses, and cross-border guidance and the U.S. person definition. “I am confident that we will address them again in a bipartisan fashion,” Scott said.
The ranking member also emphasized the importance of providing sufficient funding for CFTC, noting that the derivatives market is an “exploding sector of our world economy” worth about $900 trillion.
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