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CFTC snarls

An interesting snippet in today’s Risk magazine provides a further clue to the rapidly-evolving culture at the CFTC. Ananda Radhakrishnan, the Agency’s Director of the Division of Clearing and Risk, told a conference in London yesterday, “The first response cannot be: ‘CFTC, you have to provide an exemption.’ I say: why? I’m tired of providing exemptions…”.

Mr Radakrishnan was speaking in regard to conflict created by the differing US-EU client asset segregation regimes. EMIR requires clients to be offered the option of individual segregation or the omnibus model, while Dodd-Frank mandates LSOC. US-based exchanges that clear through London are obliged to offer asset segregation models that are disallowed in their clients’ country. In reference to two exchanges caught in the crossfire, Mr Radakrishnan said, “Ice and LCH.Clearnet have a choice: they both have clearing organisations in the US if they move the clearing to the US derivatives clearing organisation (DCO), this conflict will be resolved.” While not ruling out further exceptions, and not quite saying “Our way or the highway”, the comments may signal a tougher stance from the Agency.

The hard line was in marked contrast to the more internationally-cohesive approach of the UK’s FCA and ESMA.

“If we resolve these issues by moving business from one jurisdiction to another, I think we will be, to a certain extent, failing the commitment of the G20”, said Rodrigo Buenaventura, head of the ESMA’s Markets division.

A view echoed by David Lawton, Director of Markets at the UK’s FCA,

“The longer-term prize is how do we get to a point where we have mutually recognised regimes as being equivalent…we would be giving up at first hurdle if we assume away the problem”

Mr Radakrishnan admitted that he had not yet briefed the new Commissioners on this particular issue; however, he is either very far off “The Path Forward” message, or the message itself is rapidly changing.

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