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EU-US CCP stalemate still unresolved

The EU-US standoff over CCP equivalence looks set to continue despite the personal intervention of CFTC Chairman Timothy Massad. Following his two day visit to Brussels this week, armed with charts and calculations, the joint “progress” statement by Chairman Massad and EC Financial Chief Jonathan Hill is notable more for its minimalism than substantive content. They reiterate their joint commitment to “ensuring financial stability by ensuring an appropriate treatment of risks” and characterise the discussions as “constructive and progressing” and “mutually satisfactory on the ability for both sides to potentially defer to each other’s rules”. Each side agreed to discussions with the aim of finalising an approach by summer.

Despite Chairman Massad’s lengthy demonstration that a one day liquidation period for margin calculation is not substantially less risk averse than the EC’s preferred two day option, there is no obvious middle ground upon which a compromise may be founded. His contention that one day gross margin typically amounts to more than two day net margin has clearly failed to convince for now. Given the cost of continuing stalemate and consequent uncertainty, this progress statement amounts to an admission of provisional defeat.

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