CFTC's Massad expects deal on EU-U.S. derivatives rules

(Adds more comment, ESMA's Ross, LME)

By Huw Jones

LONDON, June 9 (Reuters) - The United States and European Union have made good progress on ironing out differences between their respective derivatives rules that threaten to fragment global markets, a top U.S. regulator said on Tuesday.

Timothy Massad, chairman of the U.S. Commodity Futures Trading Commission (CFTC), said both sides have resolved some key issues and hoped to reach an agreement this summer.

"I also believe we are both committed to resolving this without creating any disruption to the market, as evidenced by the European Commission's further postponement of the imposition of capital charges," Massad told the IDX derivatives conference.

"I expect that we will get there."

Tougher derivatives rules were called for after the sector's opacity exacerbated the 2007-09 financial crisis.

A key difference between EU and U.S. rules is the amount of margin or collateral posted by customers to back their trades at a clearing house in case of default.

In the United States, the margin should cover potential losses over a one-day period, while in Europe the period is two days, a larger amount, according to the EU.

The netting or offsetting of positions in the EU but not in the United States means more margin is collected overall in America, the CFTC argues.

Verena Ross, executive director of the EU's European Securities and Markets Authority (ESMA), which wrote the bloc's derivatives rules, said the crash of U.S. bank Lehman Brothers in 2008 showed that one-day margining was insufficient, a view disputed by Massad.

"We can each talk about how we believe our respective rules may be better or different from the other, but I think that is not necessarily the most productive way forward," Ross told the conference.

"I would hope that our colleagues at the CFTC would want to reflect further on the benefits of a two-day minimum period," Ross said. "I remain confident that we will be able to disentangle this difficult topic in a reasonable timeframe."

Garry Jones, chief executive of the London Metal Exchange and co-head of global markets at the Hong Kong Exchanges and Clearing, said people were talking about moving their clearing to where margins are lower to avoid being at a competitive disadvantage.

"I think it's actually a very big problem. I think there is going to be the problem of regulatory arbitrage which is not good for the market as a whole," Jones said.

Massad said full harmonisation of rules was unrealistic. (Reporting by Huw Jones; editing by Jason Neely)