April 27, 2010 7:41 pm

EU wants sight of data on OTC trades

Michel Barnier, the European Union official driving reform of the bloc’s financial regulation, has told US Treasury secretary Tim Geithner that EU regulators will need “unfettered access” to data on swaps trading held in “trade repositories” as they tighten scrutiny of the over-the-counter derivatives market.

His comment, in a letter to Mr Geithner seen by the Financial Times, is a sign that the issue of such repositories is becoming politically sensitive amid an overhaul of the over-the-counter, or off-exchange, markets for derivatives.

Trade repositories store, electronically, records of who traded what off-exchange derivatives and at what price. Regulators have demanded that there be much greater used of such structures to improve transparency in the OTC derivatives markets.

Debate is raging over whether there should be repositories in several countries or only a very few repositories – or even one – to ensure that data is not fragmented across jurisdictions, making it harder for regulators to have a unified view of OTC trading.

European authorities believe the region ought to have at least one to ensure that regulators there have easy access to data in their jurisdictions in the event of a catastrophic default, such as the Lehman Brothers collapse in 2008, which involved OTC derivatives exposures.

Mr Barnier said information was essential “to introduce the necessary transparency into the system”.

Mr Barnier’s letter was a generally supportive reply to correspondence sent last week by the US Treasury secretary to the European Central Bank, and copied to Brussels. In this, Mr Geithner toughened his stance on regulation, and stressed the need for transatlantic co-operation.

“We cannot allow firms to take advantage of differences in the design of regulatory approaches to shift risk globally,” said Mr Geithner last week.

Mr Barnier, in reply, backed the US call for a common approach.

“I look forward to pursuing our common objectives and to avoid any regulatory arbitrage opportunities between jurisdictions,” he says, pointing out that the commission has been working “very closely” with the US Commodity Futures Trading Commission.

The EU commissioner, who is due to meet Mr Geithner in Washington next month, confirms that Brussels will present its legislative proposals for OTC derivatives before the summer break.

On Tuesday, however, corporate users of OTC derivatives warned against rules that mandated clearing for non-financial companies that used such contracts for genuine hedging.

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