This regulation is part of the commitments taken by the European Union at G20 level with the objective of regulating the market in over-the-counter derivatives. The regulation aims to ensure the transparency of these transactions and to reduce the risks associated with these products by imposing the use of clearing houses.
Standardised and liquid derivatives products will be handled through clearing houses on a mandatory basis. These clearing houses will reduce counterparty risks because they act as intermediaries between sellers and buyers of derivative product. They ensure the solvency of their participant by requesting deposits and margin calls. The European Commission proposes also to harmonise the regulation of clearing houses that will concentrate systemic risks.
Finally, the reporting of all transactions will be mandatory and will provide supervisory authorities with the full picture of these markets.
The initial proposal is available on the EC’s derivatives webpage. The Parliament has kept the main principles of the initial proposal from the Commission. A few exemptions have been introduced, under the pressure of the financial industry, in particular for pension funds that will benefit from an extended transition period.
The report is currently in the final stages of negotiations between the Parliament, Council and Commission.
(text updated 21 October 2011)
