Brussels, 09/03/2010 (Agence Europe) - On Monday 8 March, MEPs on the economic and monetary affairs committee discussed the report by Werner Langen (EPP, Germany) on a European derivatives markets policy. The aim must be to “reduce risks, and increase the transparency and integrity” of these markets, which, though no exact figures are available, were worth $600,000 billion in 2009, with $450,000 billion traded on the stock market, Langen said. In general, MEPs support this approach. A public hearing will be held on 27 April, with adoption of the report scheduled for 4 May.
With these products being very much in the news at the moment, the debate focussed on credit default swaps (CDS). CDS are like insurance cover, where the buyer pays a premium and, in return, is protected against the risk of default by a debt issuer towards a seller, the issuer being a state or a company. Speculation on these markets has been accused of artificially increasing the costs of financing Greece's public debt, thereby threatening the stability of the euro area (see related article). Langen mentioned the five major banking operators in these markets which account for 80% of total dealings: JP Morgan manages $7.5 billion in CDS, Goldman Sachs $6.6 billion, Morgan Stanley $6.3 billion, Deutsche Bank $6.3 billion and Barclays Bank $6 billion. He said that the budgetary crisis in Greece was not a reason for banning CDS, since Greece's budgetary difficulties were known before it joined the euro and were the result of a failure of the stability and growth pact. What was to be done with credit derivatives used by financial institutions which do not hold debt certificates, wondered Leonardo Domenici (S&D, Italy). Speaking of a system where banks supposed to sell most derivatives were also the ones most exposed to risk, Pascal Canfin (Greens/EFA, France) called for sovereign CDS to be banned in Europe, since they merely complicated matters. Banning products priced in dollars would lead to these markets moving out of Europe, responded UK Labour member Peter Skinner. Backed by her Conservative compatriot Kay Swinburne, British Liberal Sharon Bowles said that reliable information had to be obtained before beginning any attempt to regulate. There was talk of 8 billion in CDS compared with 300 billion in Greek debt certificates, and these figures had not changed since September, she noted to minimise the impact of CDS markets on the costs of financing the Greek debt. According to Langen CDS traded had risen twofold.
The rapporteur also called for the new European Securities and Markets Authority (ESMA) planned in the financial supervision legislative package to have the power to grant authorisation to central clearing houses responsible for compensating standardised derived products. Swinburne expressed the view that this should be part of national authorities' remit. With regard to CCP clearing houses, Bowles warned against creating even partial monopolies, while Skinner warned against risk concentration. Canfin said that it should be for the ESMA, working with the national authorities, to decide which derivative can be standardised, otherwise there would be differences in the approaches taken by clearing houses.
MEPs raised the issue of supervision of registers containing the transactions related to non-standardised derivatives which will continue to be traded over the counter. They also discussed differentiation, seen by most as essential, between use of derivatives by financial players and by non-financial companies. Some argued for rules limiting speculation on the raw materials and agrifood markets. (M.B./transl.rt)