No regulatory relief ahead despite US-EU split

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No regulatory relief ahead despite US-EU split

Europe’s faltering on margin rules for uncleared swaps this year has, for some market participants, proved that the trans-Atlantic regulatory rollout has reached breaking point – a reckoning that, perversely, could buy the market some relief in the form of a slowdown in the regulatory pace.

But both the insistence of the US in forging ahead regardless of Europe’s wobble, plus the recent eagerness of Europe to catch up again, should be a reality check for any such hopes.

Next week marks a monumental change for the swaps market, at least in concept. From September 1, the biggest banks in the US will be required to post initial margin on uncleared trades.

While some bankers still privately express the hope that the Commodity Futures Trading Commission (CFTC) will delay the implementation of these rules at the last minute, few any longer have much faith in a regulatory reprieve. And lawyers with close knowledge of the CFTC’s plans have said there is no indication any delay will happen.

It’s a good job then that the major banks are adamant they are ready to go. 

But that hasn’t stopped some senior bank officials and other market participants from hoping this could be the turning point for the post-crisis regulatory squeeze.

As well as imposing a new regime of margin on market makers – one that will be followed on March 1 next year by the rest of the US market being required to post variation margin – the CFTC's push to implement the rules marks a big schism with Europe on the implementation of derivatives regulation.

But some have said if there is any positive in the unequal regulatory status that will emerge, it is a potential slowdown in the breakneck pace of new regulation — and a breathing space for market participants trying to make business plans and implement them.

After all, Europe's failure to match the pace on initial margin (and a similar struggle to stay on top of MiFID) shows that even the architects of the new regulatory order can't keep up.

The CFTC is driving with determination, however. And while the European Commission previously said it would not be able bring in its own initial margin rules until mid-2017, that position appears to have changed, with a redoubled effort to get back into the game. Some UK lawyers believe Europe could make good on that push as early as February.

So, if anything, Europe's delays have strengthened regulators' resolve to make good on their commitments. The market will have to suck up the unbalanced global ruleset from next week, but for the minimum time possible — the screws will tighten on initial margin in Europe soon enough.

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