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CFTC chief warns EU against regulatory overreach

J. Christopher Giancarlo, chairman of the Commodity Futures Trading Commission

CFTC Chairman J. Christopher Giancarlo on Wednesday warned European Union regulators that requiring U.S. counterparties to override domestic regulations to meet EU rules would be met with "a range of readily available steps to protect U.S. markets and market participants."

The Commodity Futures Trading Commission "cannot and will not allow its regulated markets and market participants to become subject to conflicting or overly burdensome regulation from abroad," Mr. Giancarlo said in his keynote address at the Futures Industry Association Expo 2018 in Chicago.

"No sovereign regulator would agree to it, let alone a regulator overseeing the world's largest derivatives markets," Mr. Giancarlo said. "The CFTC will not allow U.S. market participants to be put in the completely untenable position of having to choose between violating domestic laws and regulations or violating foreign laws and regulations. It is completely irresponsible for European regulators to seek to put U.S. market participants in this position."

Among the steps that could be taken are the delay or withdrawal of existing exemptions in "particular overseas jurisdictions," Mr. Giancarlo said.

"These are blunt and strong tools," Mr. Giancarlo said. "We are fully aware of the devastating impact they would have on market access and trading liquidity provision on national markets in which they would be applied. None of these options represent a course of action that I wish to pursue."

Mr. Giancarlo said he preferred a theme of regulatory deference, "a risk-based deference to non-U.S. markets" that was the centerpiece of a white paper he authored earlier this month. He acknowledged the CFTC in the past had been accused of 'overreach" applying rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to international market participants, but "that's now water under the bridge. A new approach to cross-border regulation is necessary."

A deferential approach "is the basis for any realistic chance to preserve holistic and functioning global markets" that "can help to end the imposition of unnecessarily duplicative, overlapping and costly burdensome regulatory requirements, and thereby alleviate the market fragmentation that plagues the swaps markets today," Mr. Giancarlo, adding his approach has been well received by regulators in jurisdictions beyond the EU.

Separately, Mr. Giancarlo repeated his opposition to Regulation Automated Trading, a proposal created by former CFTC Chairman Timothy Massad that would require algorithmic trading codes be registered with the agency.

"My position was, and continues to be, that while there were some good things in the proposal, there were other things that were unacceptable and perhaps unconstitutional, including that proprietary source code used in trading algorithms be accessible without a subpoena at any time to the CFTC and the Justice Department," he said. "At heart, Reg AT is a registration scheme that would put hundreds, if not thousands, of automated traders under CFTC oversight, a role for which our agency has inadequate resources and capabilities. While I share genuine concerns about the inevitability of some future market disruption exacerbated by automated trading algorithms, there is nothing in Reg AT's proposed imposition of burdensome fees and registration requirements that will prevent such an event."