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EU set to reject Geithner's deriv asks

Friday 10 June 2011 - by Andrew Hickley

The European Union has moved closer to reaching a deal on derivatives reform - though measures could face a backlash from US regulators.

A meeting between ambassadors from the EU's 27 member states took place on Wednesday with a refined text from the Hungarian presidency receiving acclaim, according to reports.

Proposals agreed upon include mandatory clearing requirements only applying to trades that are conducted away from exchanges.

Compulsory reporting requirements would be enacted on derivatives that are both listed and OTC trades, aligning the measures to proposals from the European Parliament.

It is understood that a further meeting to thrash out remaining details will take place on 16 June, which will then be endorsed by finance ministers on 20 June.

The news is unlikely to please US Treasury secretary Timothy Geithner, who last week wrote to EU representatives calling for clearing requirements to be applied to all derivatives including exchange-traded derivatives.

The G20 agreed that all standardised OTC derivatives should be centrally cleared and that standardised OTC derivatives should be traded on exchange or electronic platforms "where appropriate".

While Dodd Frank rules demand mandatory clearing of derivatives, the EU looks set to allow derivatives traded on exchanges to escape mandatory clearing - which critics say would create a regulatory loophole.

"It is important that our regulations are aligned on clearing of derivatives, and in particular, that central counterparties should provide an open and fair access to qualified participants and CCPs should provide for non-discriminatory clearing of swaps executed on unaffiliated exchanges and electronic trading platforms," Geithner wrote in the letter, sent on 2 June.

The letter was sent to the Hungarian presidency, European commissioner for the internal market Michel Barnier and the European Parliament rapporteur on Emir Werner Langen MEP.

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