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ECON revises proposed derivatives rules

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  • ECON revises proposed derivatives rules

EUROPE - The European Parliament's Economic and Monetary Affairs Committee (ECON) today voted in favour of a compromise version of its proposed new legislation for over-the-counter (OTC) derivatives.

Nearly all members showed support for rapporteur MEP Werner Langen's revised wording, which sought to distinguish between derivatives used as a "risk management tool for hedging a real underlying risk" and those "used solely for speculation".

Langen's revised proposals, which were supported by ECON members voting 43 for, with only one against, called for "better regulation of derivatives, and in particular OTC derivatives … by the use of trade repositories and centralised data storage, the use and the strengthening of central clearing houses, and the use organised trading venues".

Despite this, pension fund sources indicated that anxiety was being expressed by the pensions industry over the danger of being lumped together with speculators when the final version of the legislation is published. While corporate interests are being given understanding, pension funds are yet to see same treatment, it was said.

Werner's recommendations included a call, "as a matter of priority", for credit default swaps (CDS) to be made subject to independent central clearing and for as many derivatives as possible to be settled centrally by central counterparties (CCP).

It was also suggested that individual types of derivative with cumulative risks should, if necessary, only be conditionally authorised, or even, on a case-by-case basis, prohibited. Members also voted for the need for sufficient capital and reserves should to cover CDS "in the case of a credit event".

The European Commission is expected shortly to issue the results of a public consultation prior to publishing its own proposals for the legislation, expected in July.

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