American and European Regulation of Over-the-Counter Derivative Securities

This paper describes the major issues in the clearing of over-the-counter (OTC) derivatives and the current regulative initiatives aimed at removing the market opaqueness. The core of the paper is the comparison of the US Dodd-Frank Wall Street Reform and Consumer Protection Act and the European Market Infrastructure Regulation (EMIR). The similarities and the major differences of these two regulative approaches are emphasized. The major similarities between EMIR and the Dodd-Frank Act relate to the mandatory clearing for standardized contracts, the scope of the derivatives covered, the exemptions from clearing for end-users and the reporting of cleared and uncleared derivative transactions by nearly all financial counterparties. The major differences arise with the restrictions on bank proprietary trading, with separation of derivative trading activities from commercial banking activities, with central counterparties (CCP) ownership rules and with the establishment of mandatory exchange trading requirement.