Michel Barnier, the European Union’s financial services chief, told lawmakers to drop a threat to block derivatives rules, saying the plan may harm the EU’s credibility and give its global competitors a boost.
Delaying the measures on over-the-counter derivatives trades “would have serious implications on our credibility vis- a-vis our international partners, at a time when key discussions on the cross-border application of rules on OTC derivatives are taking place,” according to a letter from Barnier, dated Jan. 30, and obtained by Bloomberg News.
Global regulators are seeking to toughen rules for the $639 trillion market for OTC derivatives, which became a target for oversight after the 2008 collapse of Lehman Brothers Holdings Inc., and the rescue of American International Group Inc. (AIG), two of the largest traders in credit default swaps.
The Group of 20 nations agreed in 2009 that standard types of OTC trades should be pushed through clearinghouses, and logged in repositories. The EU adopted legislation in 2012 to apply the international agreement and is now in the process of adopting technical rules to flesh out the law.
Members of the European Parliament have threatened to reject two technical standards proposed by Barnier’s aides amid concerns they would be too onerous for non-financial businesses and aren’t in line with the overall legislation. The parliament’s economic and monetary affairs committee is scheduled to vote on the matter on Monday.
“We have found the procedure extremely unsatisfactory,” Sharon Bowles, chairwoman of parliament’s economic and monetary affairs committee, said in an e-mail.
“In particular the timing of the commission’s adoption of the delegated regulations just before recess meant that under normal procedure we would have only had one week to scrutinize the technical standards,” Bowles said.
Lawmakers are concerned the rules may force non-financial companies to begin passing their trades through clearinghouses even when the value of such transactions are “considerably below systemic relevance,” according to documents published on the assembly’s website.
“There continue to be several areas of concern with the technical standards,” Bowles said.
Stalling adoption of the technical rules “risks creating a competitive disadvantage for EU firms” and clearinghouses, according to Barnier’s letter, which is addressed to Werner Langen, the lawmaker in charge of scrutinizing the draft standards in the parliament.
Stefaan De Rynck, a spokesman for Barnier, and Werner Langen couldn’t be immediately reached for comment.
Clearinghouses such as LCH.Clearnet Group Ltd. and Deutsche Boerse AG’s (DB1) Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default.
Should the committee oppose the rules, the dossier would then be sent to the full assembly for further review. If it rejects the draft standards, they couldn’t enter into force. The commission, with input from the European Securities and Markets Authority, would then need to re-adopt a version of the measures for review by lawmakers and national governments.
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