It is unclear whether the European Union will exempt FX swaps from clearing rules even though the U.S. Treasury did so last month.
In November the U.S. Treasury exempted FX swaps, the second largest derivatives trading market, from certain stipulations of the Dodd-Frank Act. The Treasury cited high-levels of risk management inherent in FX trading.
“Unlike other derivatives, FX swaps and forwards already trade in a highly-transparent, liquid and efficient market,” the Treasury Department said. “This final determination is narrowly tailored.”
Nevertheless, not all U.S. organizations were pleased with the exemption.
“Exempting foreign exchange forwards and swaps at this time from the clearing and trading requirements of Dodd-Frank could increase systemic risk at a time when regulators around the globe are trying to reduce it,” stated a letter from the Commodities Market Council to the Treasury.
There is no reason to assume that the European Union will follow suit. FX Week reports that Markus Ferber, the MEP responsible for pushing Mifid legislation through the European Parliament, so far has no issue in changing Europe’s approach, which currently subjects FX swaps to clearing regulation. Of course, the European Commission and the European Securities and Markets Authority will also have a say in the discussion.
According to FX Week, Ferber was adamant that there is nothing binding the EU to the Treasury’s decision. Instead, he reiterated the requirement that the Mifid review provide one rulebook for all member states.
“The great advantage of Mifid is that we have one European standard and one European approach for the whole single market of the European Union. If you add all the financial centres in the EU together, we have the largest financial market. I don’t follow that we have to adopt only Dodd-Frank and then everything is clear. No, Europe is different,” says Ferber.