Monday, January 02, 2012

SEC and Global Regulators Engage in Dialogues on OTC Derivatives Regulation

Leaders and senior representatives of the authorities responsible for the regulation of the over-the-counter derivatives markets in Canada, the European Union, Hong Kong, Japan, Singapore and the United States are continuing a cross-border dialogue on OTC derivatives regulations. The meeting included CFTC Chair Gary Gensler, SEC Chair Mary Schapiro, Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), Jonathan Faull, Director General for Internal Market at the European Commission, Ashley Alder, CEO of the Hong Kong Securities and Futures Commission, Masamichi Kono, Vice-Commissioner of the Japanese Financial Services Agency, Teo Swee Lian, Deputy Managing Director of the Monetary Authority of Singapore, Mary Condon, Vice-Chair of the Ontario Securities Commission, and Louis Morisset, Superintendent of Securities Markets at l’AutoritĂ© des marches financiers du QuĂ©bec.

Since mid-2011, the authorities have engaged in a series of bilateral dialogues on OTC derivatives regulation on the cross-border issues related to the implementation of a regulatory regime to govern the OTC derivatives markets in their respective jurisdictions. The authorities have agreed to continue bilateral regulatory dialogues and meet as a group again in early 2012.

During a recent dialogue sponsored by the Managed Funds Association, Chairman Schapiro spoke of the efficacy of the fact that the Financial Stability Board and most of the international jurisdictions have a common framework with the SEC. Since the devil is in the details when it comes to issues around derivatives regulation, noted the SEC Chair, the SEC has been having weekly calls to go line by line through the rules, and what the EU expects out of the Markets in Financial Instruments Directive and EMIR (the European Market Infrastructure Regulation) and how they think that will translate into real regulatory frameworks in Europe and how those might match up and where there might be gaps and the opportunity for duplication.

The sessions of going through this in detail have been enormously helpful for all the jurisdictions involved, said the SEC Chair, who added that regulators genuinely want to try to land in the same place. They want to have high global standards in order to avoid any distortions or dislocations. Specifically, the SEC has been engaged in weekly phone calls with the European Commission and ESMA, and slightly less often than weekly with Japanese and Singaporean regulators to try to understand exactly where each other is going with respective regulatory frameworks in order to minimize the potential for regulatory arbitrage.