Derivatives legislation moves nearer in Europe; could face delays in US

Derivatives legislation moves nearer in Europe; could face delays in US

A European Parliament committee has given its backing to legislation that will see more derivative trades settled through clearing houses. Meanwhile, on the other side of the Atlantic, US lawmakers have moved to delay the implementation of their own new derivatives rules.

The European Parliament's economic affairs committee voted in favour of the legislation, which is designed to improve safety, transparency and stability in the OTC derivatives market - valued at around EUR425 trillion in 2009 - in the wake of the 2008 financial crisis.

Under the proposals, information on OTC derivative contracts would have to be reported to 'trade repositories' and be accessible to supervisory authorities, while trades will need to be cleared through central counterparties to reduce risks.

The new European Securities and Markets Authority (Esma) will play a key role in enforcing rules, working with national supervises and having a say in the authorisation of new CCPs.

Having been backed 36 to one by the committee, the Commission's plans will now go to a full Parliament vote in July.

Over the pond, the House Financial Services Committee has backed legislation to delay planned derivatives reform under the Dodd-Frank Act by around 15 months. The Republican dominated committee was split 30 to 24 along party lines in the vote.

Committee chairman Spencer Bachus says the plan to delay implementation of the rules until next September "gives regulators additional time and information to engage in the proper due diligence needed to get the derivatives rules right from the start".

The Securities Industry and Financial Markets Association (Sifma) welcomed the planned delay, saying: "While we remain committed to fully implementing the derivatives provisions in the Act, we believe that the current July 21, 2011 deadline does not provide adequate time for regulators to consider the critical issues related to this new regulatory system for over the counter derivatives markets."

However, the Committee's ranking Democrat, Barney Frank, says: "It's not a bill to give the regulators more time - it is a bill to prevent the regulators from acting."

The bill has already been passed by the Agriculture Committee and can now go to the House floor. However, it is unlikely to then get past the Democrat-controlled Senate.

Separately, the watchdog charged with handling the new derivatives regulation faces a 15% budget cut under a spending bill put forward by House Republicans. The Commodity Futures Trading Commission (CFTC) would have funding slashed from $202 million to $172 million under the plan to be considered later today by the agriculture subcommittee of the House Appropriations Committee.

The move comes just a month after a budget deal agreed between Congress and the White House to give the CFTC a hefty increase to deal with the extra workload and technological requirements associated with new legislation.

Comments: (1)

Gary Wright
Gary Wright 25 May, 2011, 11:08Be the first to give this comment the thumbs up 0 likes

Another brick in the wall but still only at foundation level. Its vitally important that the US and European rules and operations are standardised or arbitrage becomes a threat!

I am sure this will be part of the Post Trade Forum debate at the London Stock Exchange on the 23rd June. Join the Finextra Post Trade Forum today to join in the ongoing debate about Clearing Houses

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