London, Friday 20 September 2019 – The World Federation of Exchanges ("WFE"), the global industry group for exchanges and CCPs, has published a letter to the Commodity Futures Trading Commission (CFTC) concerning two proposals that stand to impact the supervision of non-US central counterparties (CCPs) – namely, its Proposal on the Registration with Alternative Compliance for Non-U.S. Derivatives Clearing Organizations and Proposal for the Exemption from Derivatives Clearing Registration.

The WFE has long advocated for adherence to the G20-endorsed principle of regulatory deference, and has broadly welcomed the CFTC’s efforts at codifying practices for swaps CCPs outside the US that allow for such deference. At a time when global securities supervisors are putting increasing focus on reducing regulatory-driven market fragmentation, these efforts by the CFTC are a step in the right direction, and present a window of opportunity for EU and US regulators to converge their approaches in the spirit of international comity.

Nevertheless, WFE members believe the proposals can be improved to make them more risk-sensitive and better tailored to today’s global markets. In the letter, the WFE recommends the CFTC:

  • Recalibrate the operation of threshold tests (regarding substantial systemic risk) to enhance risk-sensitivity;
  • Add a nuance to the consideration of the potential impact of stress at a clearing member to their US-parented entity and the US financial system; and
  • Introduce procedures for communication with a CCP and its home state supervisor to promote fairness and due process.

Nandini Sukumar, Chief Executive Officer, WFE said: “Extraterritorial supervision is something that is generally to be handled with care – it has the potential to fragment markets and create supervisory overlaps and underlaps. We believe that a large cohort of CCPs do not warrant such extraordinary supervision, as the activities they undertake do not represent substantial systemic risks outside of their jurisdiction.

“We recognise, however, that for some particularly sensitive products and exposures, there may be a legitimate interest on the part of host authorities to see that extra measures be taken to ensure stability in their jurisdictions. While we believe cross-border agreements have the potential to assuage many of these concerns, we are also engaging with securities and derivatives authorities in the US and EU to help design appropriate regimes for cross-border supervision. We particularly wish to ensure they are risk-sensitive.

“In the spirit of partnership with these authorities, we have made recommendations to both about how we think their proposed regimes can adhere to the best regulatory principles. We believe an amicable convergence of approaches across the Atlantic to be in sight.”

Promoting international regulatory coherence is a strategic priority for the WFE and its CCP members: the Federation recently wrote to ESMA setting out principles that could avoid international regulatory dissonance in the cross-border supervision of CCPs, as the EU sets about adopting rules to implement EMIR 2.2, and also commented on the initial legislative proposal for EMIR 2.2. Ahead of the June 2019 G20 Finance Ministers and Central Bank Governors meeting, the WFE published a statement entitled ‘Financial Stability through International Regulatory Coherence’ which discussed cross-border fragmentation arising from unjustified dissonance between jurisdictions’ financial services regimes.

You can read the WFE letter in full here.


For more information, please contact:

Bill Yelverton
Streets Consulting
Email: [email protected]
Phone: +44 20 7959 2235
Twitter: @TheWFE