There is a “transatlantic consensus” in areas such as the standardisation of OTC products and that Central data repositories should enable supervisors to get a complete overview of where the risks are in the system.
Some like it simple though: Just "freeze the OTC derivatives market". Behind this is perhaps the conjecture that, instead of transferring risk, OTC derivatives have become the tool for the financial world to just conceal risks. But on the other hand, many companies have come to love and need derivatives. And they are expressing their worries that a rigorous approach would make their hedging more expensive and thus expose them to more risk.
When the crisis started, neither the market nor supervisors knew who was bearing what risk in the economy. But now, it has become obvious: it's the taxpayer.
He said we need to find ways to ensure that derivatives can allocate the risks in the economy better and in July the Commission presented its preliminary views.
He presented the areas’ "transatlantic consensus" as follows:
1. Standardised over-the-counter (OTC) products should be cleared as far as possible by central clearinghouses.
2. Central data repositories should enable supervisors to get a complete overview of where the risks are in the system.
3. For those segments of the market that may not fit CCP clearing because they are too bespoke, bilateral clearing should be tightened and made more secure.
The first issue is central clearing: at the end of July two European central clearing counterparties (CCPs) (ICE Europe and Eurex) began clearing credit default swaps (CDSs) in the EU. This was the outcome of a significant industry effort – admittedly with a good push from us and other regulators. There is a consensus that we should expand the use of CCPs beyond this.
He concluded by saying he is particularly happy that the US were also making efforts to achieve the same goals. If there is one issue in financial services where we need convergent solutions this is it. And in the coming months he expects us to talk to each other and agree on these kinds of solutions.
© European Commission
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