Capping off a tour of Asia, Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad announced three agreements formalizing US future market participants’ ability to trade electronically over three foreign exchanges. He also gave an update on global regulators’ progress on swap market regulatory reform.
In a speech at the Monetary Authority of Singapore (MAS), Singapore’s central bank that oversees the Singapore Exchange (SGX) and other financial institutions, Chairman Massad noted that US market participants have been free to trade futures on exchanges located in other countries. However, the CFTC has required those exchanges to apply for relief from the US regulator’s registration requirements to provide direct electronic trading access.
“We have now formalized that process so that foreign exchanges … can be officially registered with us,” Chairman Massad said. “Today I am pleased to announce that we have approved the foreign board of trade registration application for the SGX derivatives exchange.”
He added that the CFTC also approved applications from Bursa Malaysia, and two days earlier he had announced the Tokyo Commodities Exchange’s approval.
“These approvals recognize the increasing interconnectedness of the global derivatives markets and the importance of Asia in that development,” Chairman Massad said. They “also demonstrate our commitment to a coordinated regulatory approach that relies on foreign supervisory authorities and ongoing cooperation.”
In addition to trading reforms, Chairman Massad updated his audience on the progress of three other areas of reform agreed to by leaders of the G-20 countries after the financial crisis that aim to improve coordination and cooperation among derivative regulators globally in terms of swap regulation.
He described clearing as perhaps the most important reform to reduce systemic risk. Financial firms face swap-clearing requirements, while nonfinancial corporates are mostly exempted from clearing swaps designed to hedge risks, although companies active in the commodity markets may have to clear trades.
Chairman Massad noted that in December 2013 the SGX became the first Asian clearinghouse to register with the US, enabling it to clear swaps for US market participants, while Europe’s LCH has been registered with the CFTC since 2001. The CFTC has granted temporary relief from registration to clearinghouses in Hong Kong, South Korea, India and Australia, where clearing for US market participants is limited to clearing members and their affiliates.
“We are currently working with those four clearinghouses on permanent exemptions, and we hope to have those in place later this year,” Chairman Massad said, adding, “They can also apply to register with us should they wish at a later date to engage in clearing for US customers.”
So far, the European Commission has declined to recognize clearinghouses registered in the US but based in Europe, and so permit them to be registered in Europe as well.
“Today, we are also continuing to work with Europe on harmonizing our rules with theirs as much as possible with respect to clearinghouse supervision. And we are working out cooperative supervision arrangements with them,” Chairman Massad said.
Chairman Massad noted significant progress from the financial crisis in terms of collecting and analyzing swap market data, to enable regulatory authorities to engage in meaningful oversight, while acknowledging much work still to harmonize data reporting standards globally and to ensure market participants cooperate.
“We and the European Central Bank currently co-chair a global task force that is seeking to standardize data standards internationally,” Chairman Massad said.
In terms of oversight of market participants, Chairman Massad said the US recently proposed margin rules for uncleared swaps that are similar to those being developed in Japan and Europe.
“There are some differences, and I hope that we can minimize those in the months ahead. I also hope similar reforms will be adopted by Singapore,” Chairman Massad said.