This article rst appeared in a slightly dierent form in
, 28 December 2009
October, the European Commission(the “Commission”) published “Ensuring
ecient, safe and sound derivatives markets:future policy actions”. This was the partingcommunication of the “Barroso Commission”
- the European Commission in place since
2004. The communication set out the futureplanned policy actions for regulatingderivatives, which the new Commission, willimplement in 2010.The Commission’s proposals centre onreducing counterparty credit risk andoperation risk; increasing market transparency;and enhancing market integrity and oversight.The new Commission will start the process of drafting “ambitious legislation to regulatederivatives in 2010”; and if the planned changescome to fruition, they will be momentous.
Across the pond, momentous changes in
derivatives regulation are being implemented.Legislation has navigated through Congress,with compulsorily clearing and exchangetrading for standardised products, and greaterregulation of market participants – nowenshrined in a bill making its way to Senate.
The European Proposals
The Commission’s proposals cover four areas:reducing counterparty credit risk; reducingoperation risk; increasing transparency; andenhancing market integrity and oversight:
Regulating DeRivatives: What’s in stoRe foR euRope anD the us in 2010?
By Edmund Parker and Devora Kirk
Reducing counterpartycredit risk
The Commission concluded that the crisisdemonstrated that market participants hadfailed to price counterparty credit riskcorrectly, and that clearing through a centralclearing counterparty (CCP) would havemitigated this. The Commission has alreadyencouraged the establishment of CCPs forcredit derivatives. We now have several inEurope. The Commission will now proposelegislation to regulate the conduct of businessand governance of CCPs, in particular toaddress conicts of interest, access,transparency of risk, business procedures andcontinuity.Legislation will cover the same range of derivative nancial instruments as MiFID. Thelegislation will provide rules to ensure thatCCPs do not employ low risk managementstandards. It will also provide greater legalprotection for collateral provided toCCPs. Although supervision of CCPs will beprovided by a home member state,
authorisations granted under this proposal
would allow CCPs to provide their services in allMember States.Central clearing for certain standardisedderivatives contracts will become mandatory.However, the communication recognises thatcentral clearing is not suitable for all derivative
is a partner and head of thederivatives practice atMayer Brown International LLP,and
is a trainee atMayer Brown International LLP.