Jonathan Jachym is the Executive Director of Government Relations for CME Group. Based in London, Jachym has interacted with regulators in the the U.S., UK and Brussels on various financial regulatory reform issues. SmartBrief sat down with Jachym on the sidelines of this week’s International Derivatives Expo in London, where he spoke on a panel entitled “What Europeans Need to Know About U.S. Regulation.”
What was your reaction to CFTC Commissioner Mark Wetjen’s comments here at IDX about market infrastructure?
I think there were some positive things in his comments. We hear a lot about mutual recognition. Europe has said they are going to recognize U.S. clearinghouses — in fact — we are engaged on that. Wetjen’s speech put the “mutual” in the mutual recognition phrase. For the first time, he said the CFTC is committed to recognizing EU-based clearinghouses. CME Clearing Europe is one of those. So rather than comply on both sides of the pond with duplicative or overlapping regulation, that was a very positive message for market infrastructure.
How do you see regulation around high-frequency trading developing?
It’s unclear. We’ve seen Europe move well ahead of the U.S. in terms of really defining what HFT regulation is going to look like under MIFID II. We’ve seen the CFTC indicate that they are going to propose something, but we don’t know what that is going to look like. We do know it more likely to be a concept release than an actual formal rulemaking. There is still a lot to learn in terms of what the CFTC’s approach is going to be. When you look at what the SEC has done on HFT, I think that’s important as well. So there have been controls put in place to address things like the “flash crash.” From a derivatives standpoint, we have been very active in deploying our own systems, technology and supervisory procedures to ensure that our markets operate safely and effectively.
You noted during the panel that U.S. agencies could be more diplomatic in how they approach the rulemaking and implementation of regulations that will affect their international counterparts. Can you expand on that?
Engagement needs to increase. Someone had to go first. The U.S. authorities did move first to put rules in place. But I think there just needs to be a more proactive and diplomatic approach to engaging on some of the details. There is a lot of discussion going on behind closed doors. Unfortunately, some of the more aggressive proposals that have come out of the U.S. have frustrated regulators in Europe and certainly in Asia as well.
You also mentioned that Brussels has been particularly challenging to navigate. Why do you think that is?
It’s interesting. The SEC has been around since 1933. The CFTC has been around since 1975. The European Securities and Markets Authority, the new EU regulator, has been around since 2011. SEC more than 3000 employees. The CFTC has about 700 employees. ESMA has 120 staff at the moment. And they are tasked with implementing very expensive regulation covering OTC clearing participants, clearinghouses and new trade repositories. I think that aspect of implementation is challenging. We had a lot of challenges with the CFTC’s implementation of Dodd-Frank. I think the bigger question is: How is EMIR implementation going to work as we move into that phase over the next 6 to 12 months.