US central counterparties (CCPs), entities in the middle of derivatives contracts on the financial market, will be allowed to function in the EU as a result of the EC´s decision to grant them equivalence status. This follows an EC assessment of US regulator´s (US Commodity Futures Trading Committee) rules and objectives. According to the EC, the US regulator has objectives equivalent to that of the EU. US CCPs will thus be allowed to function on the EU derivatives market based on the equivalence of US regulatory principles. This is a step forward in reducing regulatory burden and, possibly, promoting global regulatory standards.
In practice, to function in the EU, US CCPs will need to apply for recognition with the European Securities and Markets Authority (ESMA), an EU financial markets regulatory body. Then, they will be allowed to clear derivatives trade on the EU market, while remaining subject only to US regulatory oversight.
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26th October 2020
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