Brussels, 15/09/2010 (Agence Europe) - The European Commission has adopted “by consensus” a proposed regulation creating a framework for the derivative financial products market, “two years to the day after the collapse of Lehman Brothers”, which was “the trigger” of the financial crisis, of which we have seen no end to the economic and social consequences, said Commissioner for the Internal Market Michel Barnier, on Wednesday 15 September (EUROPE 10208). He said that one of the main objectives of the legislative initiative was to “throw light on people who are not used to it”, despite the size of a market estimated last December at nearly €435,000 billion. The new European rules, which may enter into force at the end of 2012, will frame the “post-market” activities infrastructure, in other words the national central registers and central clearing houses.
The market players covered by the proposal will have to communicate all of their transactions regarding a derivative, whether or not it is compensated, with central trade repositories. The data contained in these centres will be forwarded to the supervisors, which will have greater visibility of the positions held by the players, which will allow them to take better action to prevent crises. They will be notified to the market in consolidated form for each category of derivatives. The users of the derivatives will have to state “who they are, when they act and with regard to what products”, said Barnier.
Currently, nearly 90% of derivatives are traded on the over the counter, or OTC, market. The legislative proposal aims to reverse this trend, by favouring derivative trading on regulated markets and platforms. To this end, the Commission is currently working on changes to the “MiFID” directive (2004/39/CE). As many derivatives as possible will have to go through central clearing houses. They will then be considered as standardised. In order to determine which products will have to be systematically compensated, a double approach has been put forward: one gives the initiative to the national supervisor of a central clearing house, the other gives the future European Securities and Markets Authority (ESMA) decision-making powers for the whole of the EU. Increased capital requirements will be imposed on players which continue to trade derivatives bilaterally, as the Commission is planning to change the corresponding directives (“Basel II”). As they will be intervening between the players, the clearing houses will have to avoid concentrating too many risks. Provisions on their capitalisation, their organisational structure and risk management will be made. There are currently around a dozen central clearing houses in the world, all except one of which are located either in Europe or the United States.
ESMA. Set in place by the “financial supervision” package, the ESMA will have new binding powers. The legislative proposal is an example of the scope of these new powers, which the legislator must include in the European sectorial legislation. The Commission suggests that the European authority accredit and supervise the central registers. But, it adds, the central clearing houses should not be supervised at European level, because any financial failure of such an entity should be taken on financially by the host member state. In the event of a central clearing house offering cross-border services, ESMA would play a key role in the college of supervisors of the countries in which the clearing house is active.
Non-financial companies using derivatives products (e.g. an aircraft manufacturer covering itself against the price of fuel, an exporter against fluctuations in a given currency) may be exempted from the future regulation. Contracts between two non-financial companies with a value below a certain reference threshold will not have to be notified to a central register. The contracts of a non-financial company which are not directly related to its commercial activity and do not represent a systemic risk (compensation threshold) may be traded over the counter. ESMA will determine the thresholds in question. (M.B./transl.fl)