Dealers and banks in the over-the-counter derivatives markets will today attempt to convince policymakers in Brussels that increased regulation of OTC clearing must not result in too much standardisation of products, stifling the use of such markets.
Mario Nava, head of the European Commission’s financial markets infrastructures unit, will chair a “working group” on credit default swaps clearing, attended by exchanges, interdealer brokers and clearers.
It is the first such meeting since the derivatives industry caved in to demands from Charlie McCreevy, EU internal market commissioner, that the industry set up clearing infrastructure for credit default swaps in Europe, in addition to initiatives under way in the US.
The Commission and the European Central Bank believe a Europe-based CDS clearer is necessary because, they say, it is too risky to rely on one clearer based in the US. European authorities also want to be able to have some jurisdiction over a CDS clearer.
The meeting allows Mr Nava’s unit to consult with the industry on how it plans to meet a commitment to set up such clearing infrastructure by a deadline of the end of July.
The Futures and Options Association will express concern that, amid a wider push to tighten regulation of OTC derivatives, clearing houses are not forced to take on higher levels of risk than the current structure allows.
It will also argue that forcing standardisation of OTC contracts could “unduly constrain” the use of certain contracts. More standardised contracts lend themselves more easily to clearing.
Mr Nava’s unit is embarking on a wide-ranging study of OTC derivatives, which will assess whether there are any limits to the kind of products that can and should be cleared, how far standardisation of products should go and whether more tailored products that are unsuitable for clearing should be left alone.
Separately, moves towards a more streamlined pan-European securities settlement system took a step forward when Link Up Markets, a joint venture between eight European central securities depositories, launched a system to make it easier for cross-border settlement to take place.
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