Brussels urged to resolve delay over trade rules definition

By Philip Stafford. This article originally appeared on the Financial Times website, on September 2nd, 2014

Commodity industry groups have urged Brussels to resolve a long-running delay over their definition of off-exchange derivatives, arguing the deferment is putting European markets “at a material competitive disadvantage” to rivals.

Lobby groups representing more than 900 commercial commodity market participants sent a letter last Friday to Jonathan Faull, the head of the European Commission’s markets division, urging him to define which overseas markets would be exempt from tougher new rules clearing over-the-counter derivatives trades.

It was signed by the Commodity Markets Council, the Grain and Feed Trade Association, Energy UK, the International Swaps and Derivatives Association, the European Federation of Energy Traders, and FIA Europe, the futures industry trade association.

The groups are keen to resolve two sets of European regulations, which they argue raise the cost of compliance and risk management for commercial market participants.

Under new rules for off-exchange trading, listed contracts traded on overseas markets such as the New York Mercantile Exchange are considered over-the-counter derivatives trades and count towards clearing thresholds for non-financial counterparties such as energy companies and trading houses. Once the limits have been breached, these counterparties face additional costs.

The lobby groups argue the burden their members face would be alleviated if Brussels publicly defined a list of overseas countries that were considered equivalent to Europe. The list is required as part of the EU’s flagship markets legislation, Mifid, which came into effect in 2007.

“If they’re breaching limits, it’s usually down to these exchange-traded derivatives holdings, due to EU not recognising the markets,” said a lawyer familiar with the letter.

The commission promised to resolve the issue more than a year ago and has been working since January with several third-country regulators but, as yet, no list has been made public.

“We respectfully urge the commission to make public a list of US Designated Contract Markets and other markets considered equivalent to a regulated market . . . without further delay,” the groups wrote. “We consider that even a more limited list of equivalent markets in the US, Singapore, Canada, Switzerland, Japan and Australia would substantially solve the problems faced by our members.”

The commission declined to comment.

The plea comes as Europe finalises an updated version of Mifid. Technical rules are being drafted, with the law likely to come into force at the start of 2017. Europe is also locked in negotiations with the US to resolve the recognition of overseas clearing houses under the new rules, known as the European Market Infrastructure Regulation.

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