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It takes two to tango – Response to EU Regulator’s statement on uncleared margin rules

Despite the best intentions of yesterday’s announcement by the European Supervisory Authorities, they simply won’t have achieved anything by showing compassion for those firms that haven’t managed to get their legal documents sorted out in time for 1st of March. Here’s why.

They rightly state that they don’t have the authority to stop the rules once they have been finalised. Surely this is a fundamental design flaw? They are also telling the national regulators, who are the enforcers of these rules, to turn a blind eye to the minor indiscretions and be lenient on the smaller counterparties. Again this all sounds good, however, who do these smaller counterparties trade with?

Yes, you’ve got it. They trade with the big investment banks.

These unfashionable investment banks are certainly not the smaller counterparties that the European regulators are saying should be given a break. And here’s the kicker, do you think the head of compliance at any of these investment banks will agree to allow trading with a smaller counterparty under non-compliant documents? Didn’t think so.

The European regulators responded to pressure from the industry and other jurisdictions who have the proper power to implement a delay. Unfortunately for the European firms struggling to be ready for the 1st of March, nothing has changed.