Every month (until I forget to do so!), I think I’ll take a bit of time to think about likely “flash points” in international coordination. There are quite a few, and I can imagine a number of honorable mentions (think approaches to initial coin offerings, for beginners). But here are, in my view, this month’s most obvious points of potential friction when it comes to international financial regulation:
- MiFid II/trading venues. Bloomberg has a nice piece noting how MiFID II’s trading obligation requires that, regardless of liquidity, stocks that are listed on an EU exchange or that trade on an MTF must be traded on an EU venue.1 Thus, after 3 January 2018, EU MiFID II investment firms will only be allowed to trade those stocks outside the EU if the European Commission (EC) declares that the local markets are “equivalent.” As Shanny Basar notes, if there is no equivalence decision, US entities may not be able to trade on EU venues and vice versa.
- MiFid II/Clearinghouses. The gift that keeps giving. And perhaps taking away. As CFTC Chairman Giancarlo noted,” the United States and Europe may also be heading for another stand-off over cross-border regulation of clearing houses, which guarantee trades, having reached a hard-fought agreement on the matter just last year. The European Commission said in May it would review its rules for regulating clearing houses based outside the European Union post-Brexit, in a move that could effectively tear up the U.S.-EU deal that took three years to negotiate.”
- Basel III. There is increasing optimism about an accord, especially with Fed Nominee Randal Quarles’s generous comments concerning international standard setting, but negotiators in the Basel Committee on Banking Supervision, who meet Oct. 4-5, are divided over the use and deployment of internal models by banks to gauge risk for their capital charges. Bloomberg reports that European and Japanese regulators, whose banks are avid users of such models, warn that strict limits could punish banks with low-risk assets. The rival camp led by the Fed says a strict floor is needed to prevent banks from gaming the system. Tarullo was a staunch opponent of internal models.