January 24, 2013 7:37 pm

Clearing house push set for delay

Tougher rules in Europe for derivatives trading may face further delays as European lawmakers plan to vote in early February on a motion that would reject proposals drawn up by the region’s market regulators.

Werner Langen and Kay Swinburne, two high-profile parliamentarians on financial services, are unhappy with some of the technical standards drawn up by regulators seeking to strengthen European derivatives markets in the wake of the financial crisis.

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Rejection of them will require a formal review by the European Securities and Markets Authority (Esma), which would set back plans to introduce tighter rules on off-exchange trading.

Countries from the G20 have demanded that more over-the-counter derivatives trading be processed through clearing houses, to safeguard against global systemic risk. Europe’s response is contained in the European Market Infrastructure Regulation, for which Esma is currently writing the rules.

The G20 stipulated that the rules should be in place by the end of 2012 but European authorities currently expect mandatory clearing to begin in the middle of 2014.

However, Mr Langen and Ms Swinburne are concerned that some rules proposed by Esma do not meet the aims set out by the European Union.

In particular they are concerned about the flexibility of the rules for non-financial companies such as manufacturers, airlines and power companies, which often use derivatives to hedge risks to their business.

The motion, seen by the Financial Times, is calling for reviews of thresholds for clearing, the use of gross notional value of OTC positions to determine thresholds and the use of electronic confirmation.

A motion for a parliamentary vote is on the table for February 4, with a second plenary vote scheduled for February 7.

Ms Swinburne, a UK Conservative MEP and member of the Economic and Monetary Affairs Committee, said it was important the rules were tailored so their impact was proportionate to the risk businesses contributed to the financial system as a whole.

“The involvement of derivative instruments in the crisis was limited to financial institutions, and any remedies should not restrict the fundamental purpose of businesses hedging their operational risk using derivatives,” she said.

Esma declined to comment.

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