EU sees delays in derivatives, short-selling rules

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European Union rules to tighten derivatives regulations won't be agreed until at least the early autumn, as a global crackdown on the opaque sector faces delays on both sides of the Atlantic. 

Banks were hoping for an EU deal by this month to lift the fog on how they will have to change the way they do business.

German centre-right MEP Werner Langen said during a debate in the European Parliament that a complete first reading vote won't be held this week so as to give negotiations with EU states, who have joint say, more time.

"I am optimistic that after the summer break we will be able to find a solution pretty quickly," he said.

The measure was authored by the bloc's financial services chief Michel Barnier, who kept up the pressure on lawmakers as the G20 clock ticks away (see 'Background').

"This was a focus of the crisis. That is why this reform is so important. We have to respect the G20 commitments before the end of 2012," Barnier told parliament.

US regulators have also been forced to put the brakes on parts of their derivatives reform until the end of this year to win more time to finalise the rules.

The European Parliament says the measure should mainly cover only the off-exchange derivatives sector but member states are split, with Britain pushing for the draft law to cover all derivatives, like the US rules, to ensure competition clearing.

Britain is worried the planned merger of Deutsche Börse and NYSE Euronext will create a clearing giant that will make it hard for rival clearing houses like ICE, CME and others to compete.

"What is important is open access and efficient competition. We need to ensure there is no unfair profiteering," British Liberal lawmaker Sharon Bowles told parliament.

Even if the framework law was approved in the EU this autumn, it will take months for the bloc's regulators to thrash out implementing measures.

More bonus curbs

Barnier is keen to push through the derivatives law so he can move onto other big measures such as broadening the bloc's MiFID securities trading rules, which has been delayed until October.

Later this month, Barnier will propose a draft law to apply new global bank capital rules known as Basel III into EU law. He has already clashed with Britain, which wants the standards to be a minimum and not the same fixed common standard for all countries.

Barnier also told lawmakers he will toughen up curbs on bonuses even though the EU already has what are seen as the toughest restrictions in the world.

"I am currently working on a new framework for certain payments and bonuses which cannot be justified," Barnier said.

Meanwhile, EU lawmakers and member states were also unable to agree on short-selling curbs for bond and stock markets.

Parliament had hoped for a deal with EU states to vote on this week but the hope now is to reach a deal over the summer for a vote in the early autumn.

Lawmakers want to ban uncovered or 'naked' credit default swaps (CDS) on sovereign debt, an insurance type of derivative, where the buyer does not own the underlying government bond.

They say extreme pressure from hedge funds and other investors on Greek debt last year ahead of an EU bailout showed the need for a ban.

"It is toxic and dangerous speculation which is dangerous for the economy," said Robert Goebbels, a Luxembourg centre-left lawmaker.

EU states think a complete ban would be a step too far and could damage trading volumes, a view Barnier, the measure's author, sympathised with.

"I am not sure about a total ban on naked shortselling and the impact that could have on the bond market. We must be careful to avoid unforeseen effects," Barnier said.

EURACTIV with Reuters

World leaders (G20) agreed in 2009 that derivatives traded over-the-counter (OTC) or privately among banks should be centrally cleared and reported to a repository by the end of 2012 to curb risks highlighted by the financial crisis.

The bulk of world's $600 trillion derivatives are traded in London and New York but while the EU and United States agree on the objectives, detail is taking more time to finalise.

 

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