February 7, 2013 1:19 pm

Europe derivatives trading vote called off

European lawmakers have called off a controversial vote that would have led to further delays implementing reform of the region’s derivatives markets, following strong pressure by the European Commission.

Leading parliamentarians agreed on Thursday to withdraw a motion just hours before it was set to go to all 750 members of the European Parliament. If passed, it would have rejected some of the rules drafted by the European Securities and Markets Authority (Esma), the markets regulator, intended to tighten over-the-counter (OTC) derivatives trading.

The late deal reflects intense negotiations in recent days after the parliament’s position hardened on Monday evening when its influential economic and monetary affairs committee voted to reject Esma’s proposals.

It also highlights how the process of setting technical rules applying to EU financial services legislation has become increasingly fraught in Brussels.

Markets regulators had voiced concerns that rejection could further delay the introduction of a G20 commitment to more OTC derivatives trades being processed through clearing houses, with clearing mandatory by the end of 2012.

Europe’s response is contained in the European Market Infrastructure Regulation, for which Esma is currently writing the rules, and policy makers expect the clearing obligation to be in force from the middle of 2014.

Illustrating the global pressure authorities are under to deliver a co-ordinated response, Michel Barnier, the EU Commissioner who oversees European financial regulation, had written to Werner Langen, leading the parliament’s hardline stance, not to introduce further delays to mandatory clearing in Europe.

Under the deal, the Commission will introduce a long phase in for non-financial companies and new guidance on the interpretation of rules will allow manual confirmation of trades.

“This reform is essential to bring more responsibility and transparency to derivative transactions,” said Mr Barnier.

“Next week I will be travelling to the USA and will meet, among others, Gary Gensler, chairman of the Commodity Futures Trading Commission. I will be able to reassure our American counterparts that the EU is meeting its G20 commitment on derivatives and that we are now in a position to apply stringent rules in Europe that are equivalent to the ones in the USA.”

The vote on Monday evening marked an attempt by the parliament to flex its muscles and carve out a bigger role for itself in setting the key standards that implement financial sector reforms.

Kay Swinburne, one of the MEPs leading the move to reject the Esma proposals, said the agreement meant that “the Commission has acknowledged that the parliament’s concerns are valid.”

The withdrawal of the vote means that the standards can now enter into force 20 days after their publication in the official EU journal, which is likely to appear in mid-March.

“The decision to withdraw this resolution is a victory for the “real” economy,” said Joost Mulder, head of public affairs at Finance Watch, a public interest lobby group. “It will make it harder for non-financial companies to use their real economy business as an excuse to allow their treasury financing department to speculate on financial markets.”

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