Perhaps unconsciously channeling Angela Merkel’s evaluation of Vladimir Putin, Jerome Kemp, global head of Citi futures & OTC clearing, said the U.S. and Europe are operating in parallel universes when it comes to regulation.
“There was a certain degree of optimism in the wake of the G20 meeting in 2009. It’s fair to say, by and large the move toward central clearing has been relatively successful, but we are perhaps operating in parallel universes. In the U.S. we have full implementation of three phases of Dodd-Frank while we are still awaiting implementation in Europe.
The differences between the U.S. and European regulations carry some risk, he added.
‘We could have Balkanization due to atomization of regulatory frameworks in the EU, the U.S. and Asia.”
Simon Puleston Jones, CEO of the Futures and Options Association, said timing is an issue.
“Europe is about 18 months behind [the U.S.] and Asia is behind that.”
Part of the challenge in Asia is the extremely fragmented markets, said Paul Davies, managing director for futures services at Goldman Sachs.
“Development of capital markets from India to Japan to New Zealand, are all in various stages of development progress. We have seen a lot of wait and see from regulators, discussions of what they might do and watching to see what happens so maybe they will make fewer mistakes.”
Transaction reporting has already happened in some jurisdictions and some have launched OTC clearing, although in most jurisdictions it is not mandatory. Japan, however, has mandatory clearing for dealers.
David Bailey, head of market infrastructure and policy for the UK’s Financial Conduct Authority, said the G20’s goal to implement the regulations in three years was optimistic, but it was good to take the time to get it right.
“We are in the process as regulators of reauthorizing European and third country clearing houses against EMIR. Once they are authorized, we can start mandatory clearing in Europe in the first half of 2015.”
Americans at FIA Boca often talked of “no action” letters from regulators leading to some cases of laxity envy from the Europeans who sometimes felt stuck between regulatory requirements and the realities of technology .
“The idea of no action relief doesn’t exist in European regulatory framework,” said Citi’s Kemp. “There is no way to put things on hold. There was a relatively large gap between what regulation required and what technology could do.” He added that there is a keen need to pay attention to where technology was able to deliver vs. the regulator environment.