Brussels, 31/07/2009 (Agence Europe) - The 31 July deadline set by the European Commission for the financial services industry to introduce EU clearing systems for debt derivatives has been respected (see EUROPE 9930). Two central clearing houses - ICE Clear of the United States and a subsidary of the Frankfurt stock market, Eurex Clearing - have already been granted the necessary permits to supply their services. The Franco-British company LCH Clearnet SA is expected to enter the market by the end of the year. The International Swaps and Derivatives Association (ISDA), representing the interests of key derivatives market players, has drawn up technical standards that are respected by the vast majority of players on the derivatives markets.
Recognising that national supervisors will have to ensure that clearing houses have effective risk management strategies, the Commission points out that central chambers will be subject to a series of controls and will have to be authorised in advance before they can enter the market. The Commission pledges to examine how processes can be improved in the light of recommendations by the Committee of European Securities Regulators (CESR) and the Committee of European Bank Regulators (CEBS). The European Commission has set up a working group comprising clearing houses, users (banks, insurance companies and investment funds) and national regulators, which will monitor the migration of non-regulated derivatives to the clearing chambers. In October 2009, the Commission will report back on the overall derivatives market. A public consultation exercise has been launched, which will end on 31 August 2009, on reducing the financial stability risks of non-regulated derivatives markets. A public hearing on the issue will be organised in Brussels on Friday 25 September 2009 (see EUROPE 9935).
“The financial crisis highlighted a number of problems in the credit default swaps market, especially where transparency, market concentration and risk mitigation were concerned. Clearing through central counterparties is key to improving risk management and to increasing the stability of the financial system,” commented EU Internal Market Commissioner Charlie McCreevy in a press release. Credit default swaps are financial contracts whose value derives from an underlying asset (such as a share, a bond, a raw material or a debt) or a market variable (like interest rates or value on the stock market). By paying a set fee, financial players use derivatives to transfer risk to other players, similar to the way an insurance contract works. The derivatives markets grew exponentially until 2008, when they were valued at close to €500,000 billion. (M.B./transl.fl)