European Union lawmakers voted to approve a deal on legislation to force trading of some over-the- counter derivatives through clearinghouses to safeguard financial markets.
The deal, endorsed by the EU’s parliament in Brussels today, was reached last month by negotiators for the assembly and the region’s governments. The rules will empower EU regulators to decide on types of derivatives that should be centrally cleared. Traders who flout the rules would face penalties including fines.
“This is the cornerstone of our OTC derivatives legislation,” Sharon Bowles, chairwoman of the parliament’s economic and monetary affairs committee, told reporters.
Global regulators have sought tougher rules for OTC derivatives following the collapse in 2008 of Lehman Brothers Holdings Inc. (LEHMQ:US) and the rescue of American International Group Inc. (AIG:US), two of the largest traders in credit-default swaps.
The EU law also sets rules on management of clearinghouses, including on reserves they must hold to protect themselves from insolvency.
“Our assumption is that transparency and clearing will reduce the market” for OTC derivatives, Werner Langen, the lawmaker in charge of the file, said today.
Bowles said “a huge effort” has been made to align the EU measures with draft rules in the U.S. Still, such alignment had not been possible for exemptions from clearing requirements and for clearinghouses’ collateral rules, she said.
“They have lower standards” for collateral in the U.S., Bowles said. “It’s all very well for the U.S. to complain about our exemptions, I complain to them about their low standards for collateral.”
Michel Barnier, the EU’s financial services commissioner, said the vote is a “is a key step in our effort to establish a safer and sounder regulatory framework for European financial markets.”
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