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EU and CFTC Implement Mutual Recognition of Derivatives Trading Venues

As contemplated by announcements last month, the European Commission (EC) and the Commodity Futures Trading Commission (CFTC) took action this week to implement mutual recognition of derivatives trading venues in advance of the January 3, 2018 compliance date for the Markets in Financial Instruments Directive (MiFID II) requirement that the most liquid derivative instruments that are subject to mandatory clearing must be traded on regulated trading venues.

On December 5, 2017, the EC adopted an equivalence decision (Equivalence Decision) recognizing 14 US Designated Contract Markets (DCMs) and 23 US Swap Execution Facilities (SEFs) as eligible for compliance with the EU trading obligation for derivatives, which will shortly be introduced for certain interest rate swaps and index credit default swaps. On December 8, the CFTC issued an exemption order from the CFTC’s SEF registration requirement with respect to multilateral trading facilities (MTFs) and organized trading facilities (OTFs) authorized in the EU.

These actions permit EU counterparties to satisfy the EU trading obligation for derivatives through trading on the DCMs and SEFs that the EC has recognised as equivalent, which is now possible due to the Equivalence Decision. Equally, once the Exemption Order becomes effective from January 3, 2018, it will permit US counterparties to satisfy the CFTC’s trade execution requirement through trading on MTFs and OTFs, which will represent the first time that the CFTC will have permitted US persons to transact in swaps on non-US trading venues.

Valdis Dombrovskis, EC Vice-President in charge of Financial Stability, Financial Services and Capital Markets Union, remarked that, “European firms can continue trading in derivatives on US trading platforms and effectively hedge against risk, setting conditions for stronger growth in Europe. On the other hand, US firms can hedge their exposures on platforms, facilitating trade and exchange between the EU and the US.”

Christopher Giancarlo, Chairman of the CFTC, said, “These decisions, including all of their relevant conditions, are significant achievements, which should be enduring as they are essential to ensuring a strong and stable trans-Atlantic derivatives market that supports economic growth both in the European Union and the United States.”

The final text of the EC’s Equivalence Decision, and its annex setting out the enumerated DCMs and SEFs, is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume VII, Number 345



About this Author

Guy Dempsey Jr., Bank Regulations Legal Specialist, Katten Muchin

Guy C. Dempsey Jr. concentrates his practice on derivatives and structured products and on bank regulation. He advises clients on derivatives transactions of all types across all asset classes, as well as on the corporate governance, regulatory, collateral, compliance, insolvency and litigation issues associated with such products.

Much of Guy’s work involves helping bank and non-bank clients analyze the details and impact of the Dodd-Frank Act. He maintains deep knowledge of the banking laws and regulations relating to capital markets activities....

Carolyn H. Jackson, International Attorney, Katten Muchin law firm

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

+44 0 20 7776 7625
Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

+44 0 20 7776 7629
Neil Robson, private equity fund managers counselor, Katten Law Firm, London

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...