• European Parliament Adopts Resolution Regarding Derivatives Regulation
  • June 24, 2010
  • Law Firm: Alston Bird LLP - Atlanta Office
  • Earlier today, the European Parliament adopted a resolution addressing issues related to the regulation of the derivatives market.   The resolution was adopted following yesterday’s launch of a public consultation by the Internal Market and Services Directorate General of the European Commission (EC) seeking additional input regarding upcoming EC proposals to address the over-the-counter (OTC) derivatives markets, along with the launch of a separate public consultation  pertaining to  the EC’s forthcoming legislative proposal relating to short selling and credit default swaps. The policy actions proposed by the EC include:

    • Mandatory clearing of all standardized OTC derivatives;
    • Mandatory reporting of all OTC derivatives to trade repositories; and
    • Common rules for Central Counterparties (CCPs) and for trade repositories.

    Although the European Parliament’s resolution praised the EC proposals in part, it went on to state that “proposed EU rules on derivatives trading must be made clearer and tougher, so as to reduce speculative trading and ensure that as many derivatives as possible are traded through open channels that are subject to rules.”  The resolution explains that, although tailor-made derivatives can act as efficient and flexible risk-management tools, the EC needs to look into ways to significantly reduce the volume of derivatives and to more effectively regulate the derivatives market. 

    Interestingly, the resolution calls for increased standardization of derivative instruments, but also opposes compulsory standardization of all derivatives, and calls on the EC to use a “differentiated approach to the many types of derivative products available.”   The resolution also calls for a ban on credit default swap transactions where neither party has exposure to the underlying credit. 

    Each of the public consultations is open until July 10, 2010.  The EC plans to publish the new EU draft legislation on derivatives in September 2010, and plans to adopt a new proposal regarding credit default swaps and short selling by the end of  this  summer.