The European Union is once again expected to delay mandating new capital rules on EU banks, which trade derivatives through non-EU Clearing House, said an exclusive Reuters news report.
According to sources, on Friday the EU will vote to postpone the decision until December—a move that will give European and U.S. regulators sufficient time to settle concerns.
If the new regulation is passed, this will make it the third consecutive six-month grace period that exempts European banks from withholding more capital when exchanging derivatives at unapproved foreign exchanges, such as the United States. The current extension, which ends in June can lead to serious repercussions in the global derivatives market if the grace period’s deadline is not extended, warns the International Financing Review.
Under the new rules that came about amid the financial crisis, EU banks must keep the extra capital if they clear trades through jurisdictions that fail to meet EU standards. This is where the U.S. and European relationship becomes testy. While the European Commission has approved “equivalence” to countries such as Singapore, it failed to do the same for the U.S. Experts believe tensions surfaced in light of the financial crisis when the U.S. created its own derivatives trading guidelines without providing European regulators with significant opportunity to weigh in on the decisions.
Last month, Terry Duffy, chairman of CME Group, a US derivatives exchange, told Congress that the European Commission’s “discriminatory approach to U.S. access to EU markets is creating a significant disadvantage for U.S. markets and the participants that use those markets.”
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