S&D: EU REGULATION ON DERIVATIVES CRUCIAL TO IMPLEMENT FINANCIAL TRANSACTION TAX

The transparency and risk management of the $600 trillion over-the-counter (OTC) derivatives market will soon be regulated after a deal was struck yesterday evening between negotiators of the European Parliament, the EU Council of ministers and the European Commission.

The S&D Group negotiator Euro MP Leonardo Domenici welcomed the agreement:

"The new EU legislation marks a new step forward on transparency and stability on the financial markets. Moreover, it will facilitate the introduction of a financial transaction tax. This is a major achievement for us".

Derivatives contracts negotiated over-the-counter have been seen as one of the major causes of the 2008-2009 financial crisis. 80% of derivatives are traded bilaterally, off-exchange and with no clearing.

"This new EU legislation fills a huge regulatory gap. After the agreement on short selling of credit default swaps, we have added another brick to the wall of financial regulation by forcing all standardised derivative contracts to be centrally cleared. Appropriate procedures and arrangements are foreseen to mitigate risk for bespoke derivative contracts that will not be cleared.

"It took a long time to reach a compromise despite the fact that recommendation to regulate derivatives trading was made by the G-20 as early as September 2009.

"We have obtained the guarantee that all meaningful information on derivatives contracts is reported and accessible to European and national authorities. Reporting obligations are as broad as possible. They cover all derivatives and all actors. This will give EU authorities a full picture of derivatives markets traded both on- and off-exchange. This is crucial to ensure that a financial transaction tax is actually collectable.

"We have also strengthened the operational requirements of clearing houses and their members. Capital and collateral requirements are high, records and accounts must be kept separately for each client, and the corporate governance requirements are set in order to avoid conflicts of interest between the clearing members and the need for effective risk management.

"It is regrettable however that the Council opposed our proposal to give a stronger role to the European Securities and Markets Authority (ESMA) on the procedure for authorising clearing houses".

More information on the S&D group:

http://www.socialistsanddemocrats.eu/gpes/index.jsp?request_locale=EN

Press release of the Council:

http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ecofin/127924.pdf