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Langen wants just OTC trades cleared

Tuesday 1 March 2011 - by Andrew Hickley

European Parliament rapporteur Werner Langen

Only derivatives traded over-the-counter will face clearing obligations under draft securities proposals presented to the European Parliament this week.

A report by rapporteur Werner Langen presented to the economic and monetary affairs committee on Monday rules out allowing reporting exemptions for energy and pension funds, although some banks will be allowed exclusions to keep the regulation in line with the US Dodd Frank Act.

A controversial interoperability clause has however been removed from the drafting.

Langen, declaring he had been driven by an aim "to reach an agreement which regulates these trades as much as possible to reduce risks, without setting costs which are too high for market participants," announced that banks with less than €10bn ($13.8bn) on their balance sheet would be exempt from some clearing requirements.

Similarly, firms with less than €1bn ($1.38bn) in turnover per year would be open to less stringent clearing requirements.


While some member states had requested that every derivative trade be reported, Langen's report maintains the European Commission's proposal that this requirement would remain only for those conducted over-the-counter.

Stating that he had already received 125 recommended amendments to his report, Langen also revealed that applying clearing obligations retroactively to existing trades could be looked into by the European Securities and Markets Authority.

He said this should be done if the supervisor needed specific information surrounding the securities markets, though he recognised legal hurdles may prevent this from happening.

As expected, Langen's report also removed a proposal from a previous European Commission communication allowing for interoperability between clearing houses.

He said that this could be discussed in further proposals, but for now it raises too many systemic risk concerns.

Yesterday the Association for Financial Markets in Europe urged for the clause to be reinstated in the drafting, arguing that interoperability would help increase competition.

"There is no doubt that interoperability arrangements for cash securities would significantly increase competition and efficiency and need not increase systemic risk," claimed AFME director Stephen Burton.

MEPs from the committee will have until 16 March to submit amendments to the draft, with a committee vote on the final proposals expected on 20 April.


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