The Securities and Exchange Commission should add the European Union to a four-decade-old list of exempted issuers, a move that would ease restrictions on US investor access to the bloc's new bond futures market, according to a group representing hedge funds. The Managed Funds Association, which represents the global alternative asset management industry, told the SEC in a letter that it supports a proposal to exempt the EU from rules governing security futures. Such contracts are jointly regulated by the SEC and the Commodity Futures Trading Commission, while futures on certain exempted government bonds fall exclusively under CFTC jurisdiction.
Support came from others in the finance industry, including Deutsche Börse AG's Eurex, which listed its EU bond future contracts last year. Eurex said the current regulatory situation had "led to a de facto and complete bar" on many US participants trading futures on EU debt. If approved, the EU would be the first addition to the SEC list since 1999, potentially boosting trading as the bloc seeks to deepen liquidity in its joint debt market.
Jennifer Han, MFA Chief Legal Officer, said, "EU debt has the liquidity and creditworthiness of Europe's major government bonds, and the rules should treat it the same." Still, average daily trading volume over the past 20 sessions is barely more than 40 contracts, compared with German 10-year bond futures, which have often traded more than 2 million contracts in a single day.
Eurex has argued that EU contracts could support cash-futures basis trades and offer a superior fit for hedging exposure to smaller euro-area members such as Portugal. The SEC's consultation on the proposal closes Monday.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing