‘Equivalence’ – The Key To Global OTC Swap Reform

When I first delved into EMIR back in 2012, the importance of ‘equivalence’ didn’t even cross my mind, least of all how the global bit of all this OTC swap reform was going to play out.

Given the complexity of what had just landed in your lap, why would it?!

A year or so down the road, being older and wiser, the penny dropped about the global bit and I wrote about it in a blog in October 2013 that considered the true scale of global OTC swap reform.

Gloabl Equivalence Continue reading

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The True Scale of Global OTC Swap Reform

When the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) was passed back in July 2010, you could be forgiven for thinking that this was the regulation for global OTC swap reform. The US really were ‘first-to-market’ on this one, by a long margin, and we didn’t hear about OTC swap reform from other parts of the globe for the best part of another two years.

Skip forward to August 2012 when the European Market Infrastructure Regulation (EMIR) was passed – the European equivalent of Dodd Frank’s Title VII – and the penny started to drop that this was unfolding to be a far bigger initiative than many folks had first thought.

Now, if you had asked me earlier this year “was there life outside of Dodd Frank and EMIR”, I would have said yes and I could have told you that Canada and Australia had their own OTC swap reform programs, and that Hong Kong and Singapore were also looking to do something.

But that was about it.

It was only when I started digging deeper, that I realised how far off the mark I was. I mean, I only forgot Japan – the third biggest economy in the world – and I know they trade swaps out there for sure! Continue reading

Extraterritoriwhat?!

“Extraterritoriality”.

When I first came across this term last year, I couldn’t even spell it, let alone tell you what it meant, but in today’s complex world of regulatory change and OTC swap reform it’s kind of important to understand.

So what’s it all about?

If you look it up in the dictionary, you get “the right or privilege of a state to exercise authority in certain circumstances beyond the limits of its territory”.

And that pretty much sums it up.

In the context of financial regulations, it means that if a country thinks that your firm or business should fall in-scope of a particular regulation, even though your firm or business may not be based in that country, then the regulatory scope to comply will be extended to include you.

The basis behind extraterritoriality is straightforward – if it wasn’t applied, the entire global financial services sector would simply relocate to a jurisdiction that didn’t bother with regulations. Continue reading