From the moment this year’s International Swaps and Derivatives Association annual general meeting gets under way in Chicago on April 30, the industry will have just 35 weeks until the deadline set by the Group of 20 nations for all standardised over-the-counter derivatives to clear through central counterparties (CCPs). Given this deadline was agreed in September 2009, no one can claim they haven’t been given enough warning. Nonetheless, regulators are scrambling to get their rules out the door in time, and there is strong consensus the deadline will not be met in all jurisdictions.
In Europe, for instance, the final text of the European Market Infrastructure Regulation was only agreed in February, and was approved by the European Parliament at the end of March. The European Securities and Markets Authority (Esma) now has until September to write technical guidelines on everything from the products that will be captured by the mandatory clearing obligation to CCP margin requirements. Esma has made an early and aggressive start, and some European regulators remain confident the deadlines will be met – but it’s going to be tight.
Still, missing the deadline is not necessarily the worst thing that could happen, especially if it means coming up with regulation that is globally consistent. As it stands, there is real uncertainty as to how the various strands of regulation will tie together. Certain elements of the Dodd-Frank Act are unique to the US – the so-called swaps push-out clause and the Volcker rule, for instance. The rules also appear to have an extraterritorial reach, meaning non-US entities may have to comply with parts of Dodd-Frank alongside their own home-country regulations.
Regulators say they are co-ordinating closely with their peers in other countries to eliminate the largest inconsistencies, and hopefully develop a system of mutual recognition. Meanwhile, various bills are working their way through the US Congress that would – if passed – eliminate some of the unique elements of Dodd-Frank and limit its extraterritorial reach. But this will all take time to work through.
US regulators have already delayed implementation of parts of Dodd-Frank once. There is no shame in others following suit if it means the obvious problems are ironed out before implementation.
In this special Risk supplement to mark the 27th Isda annual general meeting, we consider some of the key regulatory challenges facing market participants – clearing across borders, the extraterritorial implications of Dodd-Frank and the need for a consistent application of Basel III. We also examine one of the landmark documentation changes from Isda this year – the introduction of a new standard credit support annex.
Click on the links below to read the stories from the Isda AGM supplement.