The House Agriculture Committee has Weighed in on the Ongoing Standoff Between US and European Regulators over Swaps Trading.

House agriculture committee - swaps tradingThe House Agriculture Committee has weighed in on the ongoing standoff between US and European regulators over swaps trading. The House Agriculture Committee held a hearing earlier in the week to move forward the reauthorization of the Commodities Futures Trading Commission (CFTC).

While that process was routine- along with a rare moment of bi-partisanship- it also included a noteworthy amendment, which dealt with the ongoing standoff between the US and Europe over swaps regulations.

As The Industry Spread has been reporting for over two years, the European regulators, namely the European Securities and Markets Authority (ESMA), have insisted that they intend to demand to be able to audit and potentially deny swap transactions done outside its borders, including in the US.

When ESMA Chief Steve Maijoor appeared with Futures Industry Association President Walk Lukken, on Lukken’s podcast, Maijoor downplayed the amount of intrusion Europe intends to bring in US markets, but in certain market altering transactions, that ESMA would insist on this veto power.

“Relying on foreign regulation and regulators will continue to be very important, but in some cases, as you identified when there are systemic risks, in those cases, you want better tools from a European perspective, and making sure that the risks from a European perspectives are- that we have the information on that and if there is a concern we can address that  from a supervisory perspective,” Maijoor told Lukken.

US regulators and lawmakers have found this unacceptable.

Chris Giancarlo, CFTC Chair
Chris Giancarlo, Former CFTC Chair

Former CFTC Chair Chris Giancarlo repeatedly said, “The US is a rule maker not a rule taker.”

Current CFTC Chair Heath Tarbert stated during his confirmation hearing, “I want to be very clear on this. I agree with you wholeheartedly, that our clearinghouses and exchanges need to be exclusively supervised and regulated by US regulators.” Dr. Tarbert stated. “Again, I go to the very point that you raised, that it’s very important that the United States have the jurisdiction and sovereignty to regulate its own markets.” 

The House Agriculture Committee included language in its authorization which supports this view.

The Chair of the committee Collin Peterson, a Democrat from the State of Minnesota read the amendment into the record during the hearing.

“Should the EU continue along the path of regulatory overreach, we ask the Commission to review the exemptions it currently has in place for market infrastructure and market participants to determine if they are still appropriate given the change in situation. We hope the Europeans will reconsider their actions and mutual  respect and cooperation among regulators are better approach is to foster effective oversight of these global markets.”

He continued in his opening statement, “The CFTC believes in that approach and I believe this Committee believes in that approach and hopefully the Europeans will decide to join us.”

Michael Conaway is a Republican from the State of Texas and he is the ranking member- or head of the minority- on the committee.

When he spoke, he appeared to increase the tension between the US and Europe by stating, “To extent that trust cannot be built among those regulators if foreign jurisdictions continue to seek to impose direct supervisory authority, this legislation will also include a second provision. The amendment before us includes language that directs Commission to reconsider the appropriateness of the exemptions that we extend to foreign jurisdictions and to curtail those in response.”

He concluded about these provisions, “taken together these two provisions give our international colleagues a stark choice, one of mutual respect and cooperation or one of antagonism and recrimination. My hope is the path forward is the former and not the latter.”