Derivatives market players warn Commission on dangers of over-regulation

Derivatives market players warn Commission on dangers of over-regulation

Banks and brokers active in the derivatives markets have warned the European Commission to tread carefully in regulating the over-the-counter markets for fear of stifling innovation and increasing instability.

The message is contained in a joint response by three leading trade associations to European Commission proposals aimed at strengthening derivatives market infrastructures.

The International Swaps and Derivatives Association, along with the Securities Industry and Financial Markets Association and the London Investment Banking Association say they "strongly support" some of the initiatives outlined by the European Commission, but caution that "hastily implemented solutions, whether voluntary or imposed, could be counter-productive".

"We believe the regulatory focus should be on process uniformity, not product uniformity," says Robert Pickel, executive director and CEO of Isda. "Exchange trading is not required to achieve this and it certainly would not insulate our financial system from risk or reduce losses in a challenging environment."

The industry bodies believe the regulators should focus attention on measures to strengthen legal standards in central counterparty clearing, and on the harmonisation of close-out netting and collateral regimes across Europe.

On the creation of new central data repositories, Isda, Liba and Sifma acknowledge that they are "in principle" relevant for systemic participants, "though it is also critical that their usage does not curtail the flow of new products to the market and fully respects the global basis on which these products trade".

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