Brussels, 10/02/2012 (Agence Europe) - On Thursday 9 February, representatives of the European Parliament and EU Council of Ministers reached broad agreement on the draft EU regulation on derivatives (see EUROPE 10543). The EP rapporteur, Werner Langen (EPP, Germany), issued a press release saying that the new rules would regulate the least transparent and most risky section of the money markets. The agreement paves the way for the regulation to be adopted in first reading and to come into force in December 2012, but it first needs to be endorsed by the European Parliament (probably next month) and then by the ECOFIN Council.
The negotiations had been in deadlock over central clearing house (CCP) measures and the role of the European Securities and Markets Authority (ESMA) in the event of disagreement among national supervisors. The following process has been decided upon. National supervisors will have the power to issue permits and scrutinise CCPs. The college of supervisors of all the countries in which a CCP is active can disagree with the issuing of a permit to a specific CCP but only by a unanimous decision (not including the supervisor of the country where the CCP is registered), and the college of supervisors would then have the power to vote (by a two-thirds majority) to issue a binding opinion about whether the CCP in question should be licensed. The rapporteur said that if at least two-thirds of the national supervisors express doubt about registration of a CCP, then EMA will have the final say. He said it was pressure from the EP that had introduced this provision.
The regulation will make it compulsory for the vast majority of derivatives deals to be processed through CCPs, derivatives that are currently sold over-the-counter (in secrecy). On paper, the derivatives market was worth more than €500 trillion in June 2011 (according to the International Settlements Bank)! All derivatives deals, whether through CCPs or over the counter (OTC), will have to be reported and national and European supervisors will be able to monitor the derivatives registries. Information will be published for the various types of derivatives deals. Langen said that very few bodies would not be covered by the reporting requirements and the obligation to process deals through CCPs, only bodies like the ECB, Bank for International Settlements (BIS) and companies using derivatives to ensure future raw material provisioning.
Broad agreement. Leonardo Domenici (S&D, Italy) says that the new regulation will make it easier to introduce the financial transaction tax (FTT) because the reporting requirements will make it easier for Brussels to get a clearer idea of the derivatives market currently traded OTC and also give them the ability to levy the controversial FTT. Criticising the attitude of the Council of Ministers, Domenici is not happy with the CCP authorisation process. On behalf of the Greens/EFA, Pascal Canfin of France welcomed the way the regulation will enhance financial stability, but said the deal was the lowest common denominator and did not give ESMA anywhere near enough powers. If CCPs are badly supervised, then the concentration of risk in a CCP may well prove counterproductive, he warned, regretting that the British outlook had won the day over the European view. British Conservative Kay Swinburne welcomed the deal as balanced and targeting weaknesses in the derivatives market without penalising non-financial companies or pension funds by increasing their costs.
Welcoming the end of an epoch of secrecy, EU Internal Market Commissioner Michel Barnier said that the EU had now met its promises to the G20 on time and urged the other G20 members that had not already done so to follow suit. Danish Economy Minister Margrethe Vestager commented: “The rules are a big step towards counteracting future financial crisis, as they reduce the risk of contagion from a crisis-hit financial institution 'infecting' the rest of the financial system via derivatives markets.” (MB/transl.fl)