CFTC Chair J. Christopher Giancarlo urged the UK and EU authorities to provide derivatives market participants with "legal and regulatory certainty."
Mr. Giancarlo said that uncertainty about the effects of Brexit on the UK and EU financial markets is impacting CFTC-regulated entities and markets. He warned that such uncertainty, if not eliminated, has the potential to cause significant instability in the global derivatives market.
Mr. Giancarlo praised the European Securities and Market Authority's ("ESMA") recent statement that, in the event of a no-deal UK withdrawal, the European Commission plans to adopt a "'temporary and conditional' equivalence regime" for UK central counterparty clearing houses ("CCPs") as of March 30, 2019 to ensure that central clearing through those CCPs will not be disrupted. Mr. Giancarlo described ESMA's decision to collaborate with the European Commission as an "important message that European authorities do not wish the political discussions over Brexit to threaten the integrity and continued operation of markets for derivatives and other financial products."
He stated that derivative market participants should have more detail and clarity from European authorities as to:
- when the proposed equivalence decision for the UK and recognition decision for UK CCPs will be made;
- whether the equivalence and recognition decisions will be applicable to all cleared products or exclusively to derivatives; and
- whether the equivalence and recognition decisions will be applicable to new and existing cleared transactions.
According to Mr. Giancarlo, the additional clarity and certainty will help mitigate "operational and market risks" that will result from the transfer of "potentially trillions of euros in swap exposures" before a potential no-deal Brexit.
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