Joint Statement by UK and US Authorities on Continuity of Derivatives Trading and Clearing Post-Brexit

U.S. Commodity Trading Commissions
U.S. Commodity Trading Commissions
This post was originally published on this site

February 25, 2019

London — The U.S. Commodity Futures Trading Commission (CFTC) and the Bank of England, including the Prudential Regulation Authority (BoE) and the Financial Conduct Authority (FCA) today issued the following statement regarding derivatives trading and clearing activities between the United Kingdom (UK) and United States (US) after the UK’s withdrawal from the European Union (EU):

Joint statement:

Market participants can be assured of the continuity of derivatives trading and clearing activities between the UK and US, after the UK’s withdrawal from the EU, following this joint statement by the Bank of England including the Prudential Regulation Authority (BoE), Financial Conduct Authority (FCA), and the US Commodity Futures Trading Commission (CFTC).

UK and US authorities are taking measures to ensure the UK’s withdrawal from the EU, in whatever form it takes, will not create regulatory uncertainty regarding derivatives market activity between the UK and US. These measures will help support financial stability and the sound functioning of financial markets. They also will give confidence to market participants about their ability to trade and manage risk through these markets.

Governor of the Bank of England Mark Carney said:

“Derivatives can seem far removed from the everyday concerns of households and businesses, but they are essential for everyone to save and invest with confidence.

As host of the world’s largest and most sophisticated derivative markets, the US and UK have special responsibilities to keep their markets resilient, efficient and open. The measures we are announcing today will do that. Market participants can be confident that the clearing and trading of derivatives between the UK and US will maintain the high standards of today when the UK leaves the EU.”

J. Christopher Giancarlo, Chairman of the CFTC, said:

“London is, and will remain, a global center for derivatives trading and clearing. Given the long-established cooperation between the CFTC and the Bank of England, the Financial Conduct Authority, and Her Majesty’s Treasury, I am pleased to announce these important measures. They provide a bridge over Brexit through a durable regulatory framework upon which the thriving derivatives market between the United Kingdom and the United States may continue and endure.”

Andrew Bailey, Chief Executive of the FCA, said:

“We have worked closely with the CFTC and other UK authorities on these measures to ensure continuity and stability for consumers, investors and other market participants, regardless of the outcome of the UK’s withdrawal from the EU. Cooperation with our international partners has always been an important part of our work, and it will remain so after Brexit. This partnership will support our day-to-day supervisory activities and rule-making, as well as encouraging open markets and the development of rigorous global standards, by ensuring that wherever firms operate, they are regulated on a consistent basis.”

Philip Hammond, Chancellor of the Exchequer, said:

“The US and UK are fundamental to the smooth functioning of the world’s multi-trillion pound derivatives markets, with around 97% of the centrally cleared interest rate derivatives market located in London. The action we have taken today with our partners in the US will ensure that markets can continue to thrive without disruption, and is yet another example of the special relationship between our two countries.”

The BoE, FCA and CFTC, as the relevant regulators of UK and US derivatives markets, reaffirm their commitment to close cooperation and, with support from HM Treasury, have agreed to coordinate on the following measures, where necessary to provide continuity, by the end of March 2019:

Notes to Editors

Selected existing cooperation arrangements between the authorities

  1. The BoE, FCA and CFTC, as the relevant regulators of UK and US derivatives markets, have the following memoranda of understanding in place. This is a non-exhaustive list covering only those most relevant to this announcement.

Relevant CFTC No-Action Letters

  1. Letter 12-70: Relief for Certain Swap Dealers, De Minimis Dealers, Agent Affiliates, and Associated Persons from Registration as an Introducing Broker under Section 4d or a Commodity Trading Advisor under Section 4m of the Commodity Exchange Act, and Interpretation that Certain Employees of De Minimis Dealers are not an Introducing Broker as defined in Section 1a(31) of the Commodity Exchange Act.
  2. Letter 13-45: No-Action Relief for Registered Swap Dealers and Major Swap Participants from Certain Requirements under Subpart I of Part 23 of Commission Regulations in Connection with Uncleared Swaps Subject to Risk Mitigation Techniques under EMIR.
  3. Letter 17-64: Extension of Time-Limited No-Action Relief from Certain Requirements of Part 45 and Part 46 of the Commission’s Regulations, for Certain Swap Dealers and Major Swap Participants Established under the Laws of Australia, Canada, the European Union, Japan or Switzerland.
  4. Letter 17-66: No-Action Relief from Certain Provisions of the Outward-Facing Swaps Condition in the Inter-Affiliate Exemption from the Clearing Requirement.
  5. Letter 17-67: Extension of No-Action Relief from Commodity Exchange Act Section 2(h)(8) for Swaps Executed Between Certain Affiliated Entities that Are Not Exempt from Clearing Under Commission Regulation 50.52.

Relevant CFTC Substituted Compliance and Exemption Orders

  1. Substituted compliance for EU entity-level and transaction-level requirements (December 27, 2013).
  2. Substituted compliance EU margin requirements for uncleared swaps (October 13, 2017).
  3. Exemption of multilateral trading facilities and organized trading facilities authorized within the EU from the requirement to register as swap execution facilities (December 8, 2017).

Selected EU legislation and European Commission Implementing Decisions

  1. Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories
  2. Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012
  3. Commission Implementing Decision (EU) 2016/377 of 15 March 2016 on the equivalence of the regulatory framework of the United States of America for central counterparties that are authorised and supervised by the Commodity Futures Trading Commission to the requirements of Regulation (EU) No 648/2012 of the European Parliament and of the Council.
  4. Commission Implementing Decision (EU) 2016/1073 of 1 July 2016 on the equivalence of designated contract markets in the United States of America in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council.
  5. Commission Implementing Decision (EU) 2017/1857 of 13 October 2017 on the recognition of the legal, supervisory and enforcement arrangements of the United States of America for derivatives transactions supervised by the Commodity Futures Trading Commission as equivalent to certain requirements of Article 11 of Regulation (EU) No 648/2012 of the European Parliament and Council on OTC derivatives, central counterparties and trade repositories.
  6. Commission Implementing Decision (EU) 2017/2238 of 5 December 2017 on the equivalence of the legal and supervisory framework applicable to designated contract markets and swap execution facilities in the United States of America in accordance with Regulation (EU) No 600/2014 of the European Parliament and of the Council.

Selected UK legislation amending EU law

  1. The Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018
  2. Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2019.
  3. Draft Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (Schedule 2 amending the Commission Implementing Decision (EU) 2016/1073 of 1 July 2016 on the equivalence of designated contract markets in the United States of America in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council and Commission Implementing Decision (EU) 2017/2238 of 5 December 2017 on the equivalence of the legal and supervisory framework applicable to designated contract markets and swap execution facilities in the United States of America in accordance with Regulation (EU) No 600/2014 of the European Parliament and of the Council)

Temporary recognition regime

  1. The temporary recognition regime is provided for by the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018.
  2. The interim list of non-UK CCPs that have notified the BoE they intend to enter the temporary recognition regime if the UK withdraws from the EU with no implementation period. The temporary recognition regime will enable eligible non-UK CCPs to provide clearing services and activities in the UK for up to three years and is extendable if required.