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CFTC gives Germany's Eurex green light to clear for U.S. investors

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CFTC gives Germany's Eurex green light to clear for U.S. investors
Guests stand in front of a sign for Deutsche Boerse Group, which owns the German stock exchange, projected on a wall during their annual reception at the Tate Modern gallery in London, January 20, 2005. Matt Dunham   -   Copyright  Matt Dunham(Reuters)
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By Michelle Price

WASHINGTON (Reuters) – The U.S. swaps regulator on Thursday will give Deutsche Borse’s Eurex the green light to clear interest rate swaps for U.S. asset managers and hedge funds, allowing the company to compete head-on with the London Stock Exchange and CME Group.

The move represents a gesture of goodwill by the Commodity Futures Trading Commission (CFTC) which has been at logger-heads with the European Union over proposed rules that could impede cross-border trading between the two markets.

Clearing houses sit in between trades to guarantee payment in the event either party defaults.

Eurex can currently clear interest rate swaps executed by its U.S. member bank firms but it has not been able to clear swaps for those firms’ end-customers, such as hedge funds and asset managers, because its depository arrangements did not meet U.S. requirements.

This has limited its ability to compete with the London Stock Exchange-owned LCH and U.S. clearing houses.

Eurex has been in discussions with the CFTC regarding adding the customer protections necessary to secure the green light from the CFTC.

On Thursday, CFTC officials said they were now satisfied that Eurex’s swaps depository risk management arrangements were sufficiently robust, even though they do not meet the exact letter of CFTC rules.

The decision comes amid broader tensions between the United States and European Union over the bloc’s proposed new rules that would mean that “systemic” foreign clearing houses could only serve customers in the EU if European regulators can jointly supervise them.

The CFTC has said it will not allow the firms it regulates to comply with conflicting and overly burdensome regulation from abroad, and has urged the EU to defer to its own regime.

Speaking to reporters, Eric Pan, director of the CFTC’s Office of International Affairs, said by giving the greenlight to Eurex, the agency was “practicing what we preach.”

(Reporting by Michelle Price; Editing by Tom Brown)

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