EU Makes Deal on Derivatives Proposal to Bridge Gap With U.K.
QBy Rebecca Christie and Gonzalo Vina - Oct 4, 2011 11:29 AM CT inShare0More
European Union finance ministers reached an agreement on how to move forward with derivatives legislation in a way that satisfies the concerns of the U.K.
“We came here in a minority, somewhat outnumbered, but through some hard negotiating we have very much improved the directive in the direction that the United Kingdom wanted to see,” U.K. Chancellor of the Exchequer George Osborne told reporters after the meeting in Luxembourg today.
The agreement doesn’t widen the scope of the current derivatives legislation, as the U.K. had sought. Instead, it provides for an EU declaration that forthcoming financial market legislation will cover any derivatives that are not forced into central clearing by the proposal.
Finance ministers agreed to restore a provision that would allow “open access” to clearinghouses for all trades, which had been removed from earlier drafts. Blocking an action by an EU country would require the support of the other 26 member states.
The Group of 20 nations is encouraging greater use of central clearing in a bid to cut some of the risks attached to derivatives trading. The Financial Stability Board has said that clearinghouses should in turn face tougher regulation because a crisis at one of them could threaten the global financial system.
Clearinghouses such as LCH.Clearnet Group Ltd. and Deutsche Boerse AG’s Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default.
Single Market
The agreement “is important to the United Kingdom as the home to 75 percent of derivatives trading in the EU and almost 50 percent of the world’s derivatives trading,” Osborne said. “Our objective throughout has been to implement the G-20 agreement on derivatives and to make sure the single market is respected.”
The EU is developing draft rules to mandate what types of derivatives should be centrally cleared. The final version of the law will need to be completed in negotiations with the European Parliament.
Heading into today’s meetings, a majority of states backed a compromise text put forward by Poland, which holds the rotating presidency of the EU, that would have mandated central clearing only for over-the-counter derivatives. Britain resisted, agreeing with the U.S. that all derivatives, including those traded on exchanges, should be subject to the clearing mandates.
‘Strongly Worded’ Declaration
Today’s agreement means the current legislation will cover a broad swath of over-the-counter derivatives, which the EU estimates includes 90 percent of all derivatives trades. Derivatives that don’t meet that definition -- and which aren’t covered by specific exemptions -- will face a central clearing requirement in future legislation. Osborne said the EU will commit to this in a “strongly worded” declaration.
Officials also are negotiating the role of national supervisors under the new regime. Osborne said today’s talks yielded a “significant improvement” in the draft derivatives legislation.
Michel Barnier, the EU’s financial services commissioner, has said the legislation needs to be completed as soon as possible.
Osborne said the draft has been adjusted to take into account U.K. concerns about different regulatory treatment for clearinghouses in different jurisdictions. He noted that the U.K. is in the midst of a related legal dispute with the European Central Bank.
“We have inserted into the article of the draft directive an explicit reference to non-discrimination against any member state in any currency,” Osborne said. “Of course we still have our legal action with the ECB, but in terms of the draft directive here on derivatives we have the clearest possible statement of a non-discriminatory location policy.”
QBy Rebecca Christie and Gonzalo Vina - Oct 4, 2011 11:29 AM CT inShare0More
European Union finance ministers reached an agreement on how to move forward with derivatives legislation in a way that satisfies the concerns of the U.K.
“We came here in a minority, somewhat outnumbered, but through some hard negotiating we have very much improved the directive in the direction that the United Kingdom wanted to see,” U.K. Chancellor of the Exchequer George Osborne told reporters after the meeting in Luxembourg today.
The agreement doesn’t widen the scope of the current derivatives legislation, as the U.K. had sought. Instead, it provides for an EU declaration that forthcoming financial market legislation will cover any derivatives that are not forced into central clearing by the proposal.
Finance ministers agreed to restore a provision that would allow “open access” to clearinghouses for all trades, which had been removed from earlier drafts. Blocking an action by an EU country would require the support of the other 26 member states.
The Group of 20 nations is encouraging greater use of central clearing in a bid to cut some of the risks attached to derivatives trading. The Financial Stability Board has said that clearinghouses should in turn face tougher regulation because a crisis at one of them could threaten the global financial system.
Clearinghouses such as LCH.Clearnet Group Ltd. and Deutsche Boerse AG’s Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default.
Single Market
The agreement “is important to the United Kingdom as the home to 75 percent of derivatives trading in the EU and almost 50 percent of the world’s derivatives trading,” Osborne said. “Our objective throughout has been to implement the G-20 agreement on derivatives and to make sure the single market is respected.”
The EU is developing draft rules to mandate what types of derivatives should be centrally cleared. The final version of the law will need to be completed in negotiations with the European Parliament.
Heading into today’s meetings, a majority of states backed a compromise text put forward by Poland, which holds the rotating presidency of the EU, that would have mandated central clearing only for over-the-counter derivatives. Britain resisted, agreeing with the U.S. that all derivatives, including those traded on exchanges, should be subject to the clearing mandates.
‘Strongly Worded’ Declaration
Today’s agreement means the current legislation will cover a broad swath of over-the-counter derivatives, which the EU estimates includes 90 percent of all derivatives trades. Derivatives that don’t meet that definition -- and which aren’t covered by specific exemptions -- will face a central clearing requirement in future legislation. Osborne said the EU will commit to this in a “strongly worded” declaration.
Officials also are negotiating the role of national supervisors under the new regime. Osborne said today’s talks yielded a “significant improvement” in the draft derivatives legislation.
Michel Barnier, the EU’s financial services commissioner, has said the legislation needs to be completed as soon as possible.
Osborne said the draft has been adjusted to take into account U.K. concerns about different regulatory treatment for clearinghouses in different jurisdictions. He noted that the U.K. is in the midst of a related legal dispute with the European Central Bank.
“We have inserted into the article of the draft directive an explicit reference to non-discrimination against any member state in any currency,” Osborne said. “Of course we still have our legal action with the ECB, but in terms of the draft directive here on derivatives we have the clearest possible statement of a non-discriminatory location policy.”