The European Commission recently determined that the CFTC regime for regulating derivatives central counterparties (CCPs) is substantially equivalent to the regime established under the European Market Infrastructure Regulation (EMIR). Thus, a CFTC-authorized CCP, upon complying with certain initial margin and liquidity requirements, may clear derivatives with European counterparties without applying for E.U. authorization. As a result, hedge fund managers that use CFTC-authorized CCPs can continue using those CCPs and will not have to move to an E.U.-based CCP. Furthermore, because they will not need to comply with a second set of rules under EMIR, CFTC-authorized CCPs may be spared additional compliance costs, which costs would have likely been passed on to hedge funds in the form of higher clearing fees. This article discusses the basis for and the implications of the decision. For more on EMIR clearing obligations, see “Central Counterparty Liquidation Period May Be Shortened Under EMIR to Conform to U.S. Regime
” (Sep. 10, 2015); and “Comparing and Contrasting EMIR and Dodd-Frank OTC Derivatives Reforms and Their Impact on Hedge Fund Managers
” (Sep. 19, 2013). For more on EMIR generally, see “EMIR Offers Three Models of Asset Segregation to Fund Managers That Trade OTC Derivatives
” (Apr. 16, 2015).