UPDATE 2-Europe, U.S. strike peace on cross-border swap rules
WASHINGTON/BRUSSELS, July 11 (Reuters) - The European Union agreed with U.S. regulators Thursday on how to jointly supervise foreign derivatives traders operating in their territories, solving a months-long trans-Atlantic rift.
The two sides agreed to rely more on each other's rules - drawn up to make banking safer after the 2007-09 credit meltdown - and will allow banks some flexibility to get out from under the most cumbersome new oversight.
"Our discussions have been long and sometimes difficult, but they have always been close, continuous and collaborative talks between partners and friends," said Michel Barnier, the European Commissioner in charge of regulation.
The U.S. derivatives regulator, the Commodity Futures Trading Commission (CFTC), and the EU's executive, the European Commission, announced a "path forward" on a package of measures that laid out how to apply the rules across borders.
The two sides are writing a raft of new rules to make the $630 trillion derivatives market safer, and prevent a repeat of the costly bank bailouts that followed the 2007-09 crisis.
The fine print of a deal is hugely important for Wall Street banks such as Citigroup, Bank of America and JP Morgan, who dominate the lucrative market.
Gary Gensler, chairman of the CFTC, has long insisted that foreign companies should comply with the agency's rules if they trade risky derivatives with U.S. firms.
Barnier, bank lobbyists and a growing chorus of U.S. politicians have chided the former Goldman Sachs banker over his intransigence, urging him to rely more on foreign regulators who are drawing up similar rules.
Reuters first reported that Gensler was within reach of an agreement with Barnier, which would give him a bargaining chip to push a deal through the CFTC, which itself has been divided over the issue.
The CFTC is set to vote on its so-called cross-border guidance on Friday, the last day it can do so because a broad temporary relief for foreign companies expires. Having no rule in place would cause regulatory confusion.
But Gensler is now within reach of a compromise with Mark Wetjen, a fellow Democrat commissioner whose vote is essential to reach a majority within the CFTC, according to a source close to the negotiations.
Barnier is scheduled to visit Washington next week, and the deal with Gensler will help address a bone of contention in international trade between Europe and America as they embark on talks towards a landmark free trade agreement.
Under the compromise, a New York bank, for example will have leeway to use a European exchange to buy and sell derivatives as long as these are registered in the United States.
For a number of rules that determine risk mitigation for so-called uncleared swaps, the CFTC would also allow market parties to choose between EU or U.S. jurisdictions.