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 US-based Managed Funds Association, which represents the global alternative asset management industry, said in a letter to the SEC 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.

If approved, the EU would be the first addition to the SEC list since 1999, potentially boosting trading in EU bond futures as the bloc seeks to deepen liquidity in its joint debt market. Deutsche Börse AG’s Eurex launched EU bond futures last year, though turnover remains a fraction of that in long-established futures markets for French, Italian and German debt.

“EU debt has the liquidity and creditworthiness of Europe’s major government bonds, and the rules should treat it the same,” said Jennifer Han, MFA Chief Legal Officer, who signed the letter. “This change will give American investors better tools to manage risk and greater access to an important global market.”The SEC opened a consultation on adding the EU to the list of exempted bond issuers following lobbying by Deutsche Börse, with the deadline to respond on Monday. The agency said the proposal “is intended to increase US persons’ access” to EU debt futures.

While the EU has sold joint bonds for decades, issuance ramped up after the coronavirus pandemic, and the bloc has been seeking to establish itself as an alternative to the region’s core sovereign borrowers, such as Germany. Those efforts have included initiatives to improve liquidity by encouraging banks to provide better pricing, creating a repo facility and lobbying index providers to include EU debt in their broader sovereign-debt benchmarks.

A vibrant futures market is seen by EU officials as a key mechanism for putting the bloc’s debt on a par with that of major sovereign borrowers. Yet average daily trading volume over the past 20 sessions stands at barely more than 40 contracts, and turnover has exceeded 1,000 lots on only one day this year. By comparison, German 10-year bond futures have often traded more than 2 million contracts in a single day.

In a white paper released earlier this year, Eurex touted the potential for cash-futures basis trades, a popular hedge fund strategy, using EU contracts. The exchange also said that EU bond futures “provide a superior fit” for investors seeking to hedge their exposure to the government debt of smaller euro-area members, such as Portugal.

“It is the only derivative product that captures the shared European-wide fundamentals embedded in non-major sovereign yields,” the Eurex paper authored by Hanke Hans Zhu and Jutta Frey-Hartenberger said. “This mitigates the idiosyncratic political and fiscal risks inherent in sovereign-specific hedging instruments.”Eurex isn’t the only exchange offering EU bond futures. Intercontinental Exchange Inc. launched a similar product in late 2024. Its open interest and volume metrics are also small relative to the most popular European bond future contracts.

Adding the EU to the SEC list would address the “current asymmetry between futures on EU debt obligations and futures on debt issued by designated EU Member States, while improving market access, hedging opportunities, market depth, and competition,” the MFA letter said.