Non-Financial Firms to Get 3-Year Delay on Swaps Rules, EU Says

Energy and technology companies are among non-financial firms granted a three-year reprieve from parts of European Union rules on over-the-counter derivatives, under a compromise deal backed by lawmakers today.

The European Parliament lifted a veto threat after regulators promised to phase in a requirement to route trades through clearinghouses that lawmakers deemed too burdensome for businesses that use swaps for hedging rather than to bet on financial markets.

The European Commission “has acknowledged that the parliament’s concerns are valid,” Kay Swinburne, a U.K. member of the assembly, said in an e-mailed statement. “There will be a long phase-in and flexibility for supervisors in how the rules are applied.”

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., two of the largest traders in credit default swaps.

The EU technical measures flesh out parts of a law to regulate trading in OTC derivatives that the EU adopted in 2012. The rules have already survived scrutiny by governments, meaning the parliamentary process was the last legal hurdle before they could enter into force.

Competitive Disadvantage

Parts of the technical standards that aren’t subject to the three-year phase-in period are set to take effect “around mid-March,” Michel Barnier, the EU’s financial services chief, said in an e-mailed statement.

Members of the EU parliament had raised concerns about the “technical content, procedural cooperation and timing” of the measures, Sharon Bowles, chairwoman of the parliament’s Economic and Monetary Affairs Committee, told the assembly in Strasbourg, France, today.

Barnier warned last week that rejecting the technical measures may leave banks and other financial firms at a “competitive disadvantage” by forcing them to comply with competing sets of national rules.

The U.S. Commodity Futures Trading Commission is under pressure from regulators in the EU and Japan to overhaul its planned national rules for OTC derivative trading on concerns they may leave companies outside the U.S. facing overlapping requirements and unnecessary costs if they seek to trade with U.S.-based businesses.

Barnier said that he would discuss possible clashes between swaps rules in meetings next week with U.S. regulators.

“With my visit I hope to make progress towards a system whereby the EU and the U.S. recognize the application of their respective rules on both sides of the Atlantic as equivalent,” Barnier said.

“I will be able to reassure our American counterparts that the EU is meeting its G20 commitment on derivatives, and that we are now in a position to apply stringent rules,” he said.

Barnier said his visit to the U.S. would include meeting with Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission.

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