Bloomberg News

EU Governments Said to Be Close to Deal on OTC Derivatives Law

September 28, 2011

Sept. 29 (Bloomberg) -- European Union governments are close to a deal on rules for trading of over-the-counter derivatives in the region following a negotiation meeting yesterday, said two people familiar with the discussions.

The draft rules, which would empower the EU to decide on types of derivatives that should be centrally cleared, will now be discussed by the 27-nation region’s finance ministers next week in an attempt to confirm the accord, said the people, who declined to be identified because the talks are private. The final version of the law would then be completed in negotiations with the European Parliament.

A majority of states back a compromise text put forward by Poland, which holds the rotating presidency of the EU, the people said. The United Kingdom hasn’t given its backing, one of the people said. A representative at the U.K. government’s office in Brussels couldn’t immediately be reached for comment after regular business hours. U.K. support isn’t required for EU passage of the new rules.

The original version of the draft law was proposed by Michel Barnier, the EU’s financial services commissioner, in September 2010. Barnier “has stressed the importance of concluding work on this legislation as soon as possible,” Chantal Hughes, his spokeswoman, said in an interview.

“We hope to see substantial progress in coming days, including at next week’s meeting of finance ministers,” Hughes said. Barnier will work with governments “to help find a way forward on the few outstanding issue that hopefully satisfies all parties.”

Clearinghouses

Clearinghouses such as LCH.Clearnet Group Ltd. and Deutsche Boerse AG’s Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default. The Group of 20 nations is encouraging greater use of them in a bid to cut some of the risks attached to derivatives trading.

The Financial Stability Board has said that clearinghouses should in turn face tougher regulation because a crisis at one of them could threaten the global financial system.

Points of discussion for governments on the draft law have included what access clearinghouses should be granted to trade data from exchanges, whether to fully apply the clearing rules to pension funds, and what powers should be granted to the European Securities and Markets Authority.

The law would also set rules on management of clearing houses, including on how much capital they must hold to protect themselves from insolvency.

--Editors: David E. Rovella, Patrick Oster

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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