OTC Derivatives Regulation and Extraterritoriality

The US and EU are currently introducing comprehensive new measures to regulate over-the-counter derivatives. Both the US and EU measures have some degree of extraterritorial application. In the absence of agreement between the US and EU regulators, extraterritoriality has the potential to cause intractable and irreconcilable conflicts for the derivatives industry. This note sets out some of the situations in which extraterritoriality is likely to result in such conflicts.

Introduction

On 21 July 2010, The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") was enacted in the USA. Title VII of Dodd-Frank sets out a comprehensive reform of the over-the-counter ("OTC") derivatives market. Shortly afterwards, on 15 September 2010, the European Commission published a proposal for a new regulation on OTC derivatives, known as the European Market Infrastructure Regulation ("EMIR") and various further drafts have subsequently been published.¹ Both