The G20 mandate to overhaul derivatives markets has failed to address how regulatory interpretations of different jurisdictions should work together, comments Stafford in the FT.
Consider the evidence of the past few weeks. Despite the 'Common Path Forward', the Commodity Futures Trading Commission, the US derivatives regulator, issued a couple of letters that indicated the Dodd-Frank Act would apply to all foreign operations in the US on behalf of non-US persons. That ruling, dropped to little fanfare, has had brokers and interdealer brokers up in arms.
Then Asian regulators attacked their European counterparts, outlining their concerns over the impact of the incoming European Markets Infrastructure Regulation on their domestic markets. Then on Wednesday, another blow to the Common Path Forward as some of Wall Street’s biggest interest groups sued the CFTC over the agency’s controversial cross-border swaps rules.
Which leaves us with the question: where do we go from here? The alternative would be splitting up a global market into smaller pools in which each regulator is sure of his jurisdiction but there are competing pools of the same products. Costs would be loaded on to the industry and end investors and there is no guarantee that it would actually make markets and investors (and the taxpayer) more secure.
While the lawsuit was being filed, on the other side of the world Scott O’Malia, the CFTC commissioner who has been most critical of his own agency’s process, at least acknowledged the problem. “It is time to end this regulatory insanity", he told delegates at the FIA Asia annual meeting in Singapore. Mr O’Malia, remember, will be the senior commissioner at the CFTC in a month’s time.
Some have called for an umbrella oversight group, comprising possibly the International Organisation of Securities Commissions and the Bank for International Settlements, to act as mediator for disputes. A sound idea, although it would obviously require individual regulators to submit to a higher authority and accept their decisions as binding. Easy in theory, less so in practice. Furthermore, setting up a body like that would delay an already slow process.
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