Commodity Management Blog

Innovative Ideas and Thought Leadership for Volatile Commodity Marketplace

Dan ReidThe sweeping Dodd-Frank Act changes in the US for market participant classification, clearing, and margining are being closely watched and emulated internationally.  The dangers/opportunities between national regulations, adoption, and timelines can be significant.

In September of last year, the European Commission proposed a framework to regulate OTC derivatives, central clearing counterparties, and trade repositories.  In December, the Commission also published a consultation paper on the Markets in Financial Instruments Directive (MiFID) to “improve the regulation, functioning and transparency of the financial and commodity markets to address excessive commodity price volatility.”  In a joint statement from EU Commissioner, Michel Barnier and CFTC Chairman, Gary Gensler, Barnier stated, “It’s essential –across the board on all financial regulation–that the United States and Europe move in parallel and that we don’t create new space for regulatory arbitrage.”

It still remains to be seen how significant the differences will evolve, and which countries and companies will be most affected or take the most advantage (China stands out as a likely recipient of business fleeing costly or time-consuming regulations.)  Below is a table with some of the key similarities/differences.  Also of note is that some of the regulations at the bottom that are US-centric may be applied to US-listed companies or those operating in the US (e.g. Canada.)

 Description

US

 EU

 Clearing  Mandatory for standardised OTC contracts (unless end-user exempted)  X  X
 End-User
Exemption
 Hedging for non-financial entities  X  X
 Mandatory
Reporting
 Uncleared swaps to SDR (US) or trade repository (EU)  All  Specified
Threshold
 Volker Rule  Prohibiting bank proprietary trading  X  
 Swap Push Out  Banks to establish separate trading entity (“too big to fail”)  X  
 Timeline  Deadlines for most major provisions to be published 9/2011  12/2012
 Policy
Fragmentation
 Regulatory bodies that are responsible for enforcement  Many
Agencies
 Many
Countries
 Payment
reporting
 Reporting on payments to non-US governments (provinces and municipalities)  X  
 Compensation
Limits
 Executive compensation drawbacks  X  
 Safety
Regulations
 Companies operating mines in the US  X  
 Whistleblower
Recovery
 Up to 30% >$1M in damages  X  
 Conflict
Minerals
 Independent review of minerals being conflict free (e.g. Congo)  X  

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