ISDA outlined the challenges and addressed questions concerning cross-border trading in light of the equivalence agreement reached between the CFTC and the European Commission in October 2017.
In its new Practical Guide to Navigating Derivatives Trading on US/EU, ISDA characterized the agreement as an important step toward the global harmonization of derivatives rules. ISDA further noted that the lack of "wholesale equivalency" will still present market participants with challenges in several areas, including:
- Clearing. U.S. and European Union ("EU") persons will still need to comply with home-country clearing rules when trading on EU multilateral trading facilities ("MTFs") or organized trading facilities ("OTFs"), as well as U.S. swap execution facilities ("SEFs").
- Real-Time Reporting. Since the European Union allows EU persons to comply with U.S. real-time reporting rules as opposed to EU post-trade transparency rules, and the CFTC has not made an equivalent determination, certain trades executed on MTFs/OTFs may be disseminated to the public twice.
- Regulatory Reporting. There is a lack of comparability in regulatory reporting including requirements to report certain details of trades to multiple regulators in different timeframes.
For both (i) a U.S. person trading on an MTF/OTF and (ii) an EU person trading on an SEF, ISDA outlined: (1) general registration obligations, (2) pre-execution considerations, (3) execution considerations, (4) clearing considerations and (5) reporting considerations.
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