Compromise Deal Reached on EU Legislation to Regulate Trade in OTC Derivatives
Parliament and Council representatives struck a compromise deal yesterday on new EU legislation to regulate trade in over-the-counter (OTC) derivatives and make the derivatives market safer and more transparent.
Werner Langen (EPP, DE), who is steering the regulation through Parliament, welcomed the deal as a "big step towards a more transparent and safe market for OTC derivatives", saying he was glad that "the Council accepted a strong role for the new European Markets and Securities Supervisor (ESMA)", and adding that he hoped to secure a good majority in favour in the plenary vote.
The regulation lays down that OTC derivative contracts would need to be cleared through central counterparties (CCPs), thus reducing counterparty credit risk.
MEPs secured a requirement that all derivative contracts (not only OTC derivatives), would have to be reported to central data centres, also known as trade repositories. These trade repositories would have to publish aggregate positions by class of derivatives, thereby offering market participants a clearer view of the derivatives market.
The European Securities and Markets Authority (ESMA), will be responsible for the surveillance of trade repositories and for granting and withdrawing their registration.
Plenty of discussion was had between Member States on the topic of authorisation of CCPs. A strong role has been secured for ESMA. Parliament succeeded in providing for binding mediation by ESMA in disputes between national authorities over the authorisation of CCPs.
CCPs from third countries will be recognized in the EU only if the legal regime of the third country in question provides for an effective equivalent system for recognition. However, this does not set a precedent for other legislation on the supervision and oversight of financial market infrastructures.
The Council and Commission also agreed to a proposal by Parliament to have the implementation of the legislation evaluated by the Commission. This evaluation would include the effectiveness of the supervisory framework for CCPs, including the effectiveness of supervisory colleges, the respective voting arrangements and the role of ESMA, particularly during the process of authorising CCPs.
The Commission will present a report, if necessary accompanied by proposals to Parliament and Council, no later than three years after the regulation's entry into force.
