EUROPE - Pension funds should not be exempted from new rules governing derivatives, according to rapporteur Werner Langen, the man in charge of steering the legislation through the European Parliament.

The presentation of Langen's draft report to the Economic Affairs Committee earlier today officially kicked off the process of overhauling derivatives regulation in the EU.

"My aim," he said, "is to reach an agreement that regulates these trades as much as possible to reduce risk without setting costs that are too high for market participants."

In his report, Langen dismissed arguments that certain sectors should be exempted from the regulation, and while he argued that pension funds should not benefit from a general exemption, he did concede the "lesser obligation" of bilateral clearing "could be envisaged".  

He rejected a proposal to allow 'interoperability', arrangements between clearing houses whereby traders can choose where their trades are cleared.

Langen said such arrangements could lead to a "build-up of systemic risk" and that they should be tackled in separate legislation.

He also said rules on derivatives should govern only privately held contracts rather than all types of derivatives, as some European member states had demanded.

Instead, he recommended keeping to the "original Commission proposal", limiting the scope of the rules to over-the-counter (OTC) derivatives.

The European Commission submitted a proposal for a regulation on OTC derivatives two years after Lehman Brothers collapsed in 2008.

MEPs from the economics committee will be able to submit amendments to the draft text until 16 March, while a vote in committee is expected on 20 April.