Brussels, 06/10/2011 (Agence Europe) - Despite lack of support from the 26 other member states, the United Kingdom has won several concessions over the draft EU regulation on derivatives, on which basic agreement was reached at the ECOFIN Council in Luxembourg on Tuesday 4 October (see EUROPE 10466). The regulation will increase transparency and reduce risk in a market blamed with spreading the 2008 financial crisis. It introduces reporting requirements for derivative deals on national registers and payment for standardised derivatives through centralised clearing houses (CCPs). Negotiations will soon begin between the member state and the European Parliament with the aim of agreeing on the new legislation by the end of the year so the new rules can come into force on 1 January 2013.
Fighting his corner right until the end of the meeting, even after some finance ministers had already left Luxembourg, the UK Chancellor of the Exchequer, George Osborne, won agreement on a clause to ensure competition among CCPs is re-introduced into the draft deal. The Polish Presidency had withdrawn the clause from the deal it received from the Hungarian Presidency. It enables trading centres to use any CCP for the payment of over-the-counter (non-standardised derivatives) and gives CCPs conditional access to the trade flows from trading venues. Germany and France are keen to defend their own markets and strongly opposed this measure. The fact that London won this fight comes as a warning to the European Commission, which has not yet authorised the planned merger of Deutsche Börse and NYSE Euronext. On Tuesday, EU Internal Market Commissioner Michel Barnier welcomed the measures to allow CCPs access to any trading venue's trade flows.
The United Kingdom also won a concession from its partners over the supervision of CCPs. It had already managed to get national supervisors to issue authorisations for CCPs once the College of Supervisors has indicated its agreement. If the College of Supervisors disagrees, the College will be required to examine the question a second time and issue an opinion unanimously rather than by a simple majority. Barnier said that although 75% of the OTC derivatives market goes through the City of London, 80% of the deals are in euros, which shows that this is a wide market and it makes sense to assess the impact on other countries of measures taken in a large member state.
London was not able to win its way over the scope of the regulation. Osborne fought to get compulsory payment for all derivatives, rather than just OTCs as at present. Germany argued that stock markets and electronic trading are already subject to transparency rules. The European Parliament agrees with the approach finally decided upon (see EUROPE 10412). The European Commission, however, agreed to take account of London's concerns in its draft MiFID II legislation (on financial instruments), expected to be unveiled next month (see EUROPE 10456). Pension funds will be exempt from the compulsory OTC derivatives reporting requirements until 2016 or possibly 2018.
The European Securities and Markets Authority (ESMA) will be responsible for standardising OTC derivatives and the Commission comments that there will be no exemptions from the requirement to pay for any type of derivative. ESMA will make decisions, which will then need to be endorsed by the European Commission. ESMA will supervise and authorise national registers publishing aggregate information about positions held in each category of derivatives. It will also have the power to decide whether the rules in non-EU countries where CCPs are registered comply with EU legislation. The obligation to clear derivatives contracts through a CCP only applies to non-financial bodies once a certain threshold has been reached. ESMA will decide on the thresholds. (MB/transl.fl)