EU Ministers Get Deal on Clearing Rules for OTC Derivatives
Thursday, 26 January 2012 | 00:00
European Union finance ministers reached a deal to resolve a split on regulators’ powers over clearinghouses that handle over-the-counter derivatives.
The ministers, meeting in Brussels today, struck an accord on when supervisors in the region can override national decisions to authorize clearing firms.
The clash had threatened progress toward the region’s implementation of an international accord to toughen rules for trading and clearing of OTC derivatives. The Financial Stability Board warned last year that nations may miss an end-2012 deadline for applying the measures, and that there were signs that the rules were being applied in an inconsistent way.
“Now we have a delicate compromise but the fine thing is that we all agree on it,” Margrethe Vestager, Denmark’s economy minister, said at the close of the debate. Denmark holds the EU’s rotating presidency.
The U.K. government has sought to limit the override powers, warning that they could be used to pressure U.K.-based clearing firms to move part of their business to the euro area. Allowing national decisions to be overturned shouldn’t set the precedent for future EU financial laws, according to the deal.
Under the compromise deal, regulators would be able to block a national decision to authorize a clearinghouse if they get a two-thirds majority with other supervisors, according to a text of the EU accord given to reporters after the discussions. A final ruling would then be made by the European Securities and Markets Authority.
The U.K. has sued the European Central Bank over its plans to prevent trades in some euro-denominated securities from being cleared outside the 17 countries that share the currency. The ECB has said that being based within the euro region should be a condition for receiving emergency funding from the central bank.
Britain has also sought to thwart the ECB stance by seeking safeguards in the draft derivatives legislation.
ESMA’s final decisions on whether a clearinghouse should be authorized will be based on whether the company meets minimum standards in the draft law on financing and other safeguards to protect it from collapse, the document says.
Ministers also agreed to limit the number of authorities from each EU nation that could take part in votes to block decisions authorizing clearinghouses.
The draft law must be voted on by the European Parliament and approved by EU nations before it can enter into force.
Today’s deal should spur an accord on the law at the next negotiation meeting between governments and lawmakers, Michel Barnier, the EU’s financial services chief, said.
“I’m hopeful we will have an agreement,” Barnier told reporters after the meeting. “Clearinghouses will be the new institutions which will be too big to fail, and so there will be systemic risks involved.”
The negotiations have been provisionally scheduled for Jan. 31, said Chantal Hughes, a spokeswoman for Barnier.
Today’s agreement shouldn’t be watered down in negotiations with lawmakers, said George Osborne, the UK’s finance minister.
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