U.S. Commodity Futures Trading Commission 

Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581 

www.cftc.gov 

Scott D. O'Malia 

Commissioner 

Mr. Michel Barnier 

European Commissioner for Internal Market and Services 

European Commission 

BERL 12/181 

B - 1049 Brussels 

(Belgium) 

May 6, 2014 

(202) 4 18-5870 

(202) 418-5550 Facsimi le 

somalia@CFTC.gov 

RE: U.S. Equivalence Decision and Recognition of U.S. Central 

Counterparties (CCPs) under the European Market Infrastructure 

Regulation (EMIR) 

Dear Commissioner Barnier: 

I write to you on a matter of significant concern and urgency regarding the 

upcoming deadline of June 15, 2014 for higher capital standards on all third 

country CCPs that are not recognized under EMIR, pursuant to the Capital 

Requirements Directive (CRD IV). 

As you know, after June 15, third country CCPs that do not receive 

recognition will not qualify as Qualifying CCPs (QCCPs) for purposes of the 

Basel III risk-weighting approach for banking institutions. This undesirable 

result could potentially cause market disruption and dislocation due to the 

international nature of the swaps market and the prohibitive cost for EUbanks 

to clear through third country CCPs. 

In addition, without recognition, U.S. CCPs will be unable to maintain direct 

clearing member relationships with EU firms. U.S. CCPs would also be 

ineligible to clear contracts subject to the EU clearing mandate next year. 
These scenarios would be detrimental to both U.S. and EU interests by leading 

to market fragmentation and contraction of liquidity. 

Under the Path Forward of July 11, 2013, the U.S. and the EU reaffirmed their 

strong commitment to G20 principles to lower risk and promote transparency 

in the over-the-counter (OTC) derivatives markets in order to monitor 

systemic risk and prevent another great financial crisis. Together, the CFTC 

and the European Commission (EC) pledged to work closely and 

collaboratively to implement regulations to mandate swap data reporting, 

exchange trading, and CCP clearing through a system of substituted 

compliance or equivalence. 

Although I am confident that the U.S. and the EU will successfully harmonize 

the implementation of G20 principles, I am concerned that the process for the 

EC's equivalence decision for the U.S. regulation of OTC derivatives, as 

established under Title VII of the Dodd-Frank Act, will impede the 

recognition of U.S. CCPs prior to the June 15 deadline. I would like to offer 

my services to assist you in finding the U.S. regulatory regime equivalent 

under EMIR in an expedient manner. 

The Path Forward acknowledged that U.S. implementation of OTC 

derivatives reform is nearly complete. Last year, the CFTC finished adopting 

the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMis). 1 

Fmther, in keeping with the commitments made in the Path Forward, the 

CFTC has issued substituted compliance determinations and recently provided 

relief for EO-regulated multilateral trading facilities (MTFs). 

It is my understanding that although over 33 non-EU CCPs from 15 

jurisdictions filed for recognition last September, no application has yet been 

deemed complete. Given that there is only one month left before the June 15 

QCCP relief expires, I hope that you will devote your attention to this 

imp01tant issue at this time. 

I also note that other jurisdictions are looking to your decision on U.S. 

equivalence to see whether a holistic approach is being followed, and what 

they can expect for their own equivalence decisions. 

1 CFTC regulations have fully implemented the PFMis. See Derivatives Clearing 

Organization General Provisions and Core Principles, 76 Fed. Reg. 69,334 (Nov. 8, 2011); 

Enhanced Risk Management Standards for Systemically Important Derivatives Clearing 

Organizations, 78 Fed. Reg. 49,663 (Aug. 15, 2013); Derivatives Clearing Organizations and 

International Standards, 78 Fed. Reg. 72,476 (Dec. 2, 20 13). 
Accordingly, I urge you to proceed with all diligence to find the U.S. 

regulatory regime equivalent under EMIR so that the European Securities 

Market Authority (ESMA) may recognize U.S. CCPs by June 15. Although 

there may be some nominal differences between our regimes, our respective 

rules comply with the PFMis and are essentially identical as a result of the 

collaboration, coordination, and cooperation between the CFTC and EC. I 

commend you for your leadership in this regard. 

I reiterate my firm belief that the key to effective and efficient cross-border 

regulation of the swaps market is through an outcomes-based approach where 

regulators would defer to the other jurisdiction when it is justified by the 

quality of their respective regulation and enforcement regimes. The CFTC 

has made an initial start towards permitting foreign exchange trading by 

providing relief for Qualified MTFs. 

While we are essentially agreed on higher capital and margin requirements for 

OTC derivatives, we still need to come to agreement on swap data reporting 

and international data sharing. Your initiative in promoting the recognition of 

U.S. CCPs would provide a much-needed push to the resolution of exchange 

trading and data sharing issues. 

I am encouraged by the steadfast progress made by our two jurisdictions to 

implement the G20 principles while avoiding conflicts of law, inconsistencies, 

and legal uncertainty. In the spirit of the Path Forward, I hope that we can 

continue to find substituted compliance for your regulations, on the one hand, 

and equivalence for our regulations, on the other hand. 

Thank you for your personal commitment to working through these impmiant 

issues concerning U.S. equivalence and CCP recognition. I am happy to 

answer any questions you might have or discuss this fmther. 

Sincerely, 

Commissioner 

U.S. Commodity Futures Trading Commission 
cc: Jonathan Faull 

Patrick Pearson 

Maria Teresa Fabregas Fernandez 

Mario Nava 

(European Commission) 

Steven Maijoor 

(ESMA)