Concerns are growing on the increasing divergence between the EU and the US on OTC derivatives regulation. According to the FT, Europe’s largest companies are accusing the US of being ‘adamantly unwilling’ to relax proposed reforms of OTC markets.
The Financial Times has reported that Europe’s largest companies are accusing the US of being ‘adamantly unwilling’ to relax proposed reforms of the over-the-counter derivatives markets, exposing the first transatlantic split over how far to clamp down on opaque markets.
Companies in the US and Europe have been lobbying against regulators’ demands that as many OTC derivatives as possible should be shifted onto exchanges and processed through clearing houses.
The administrations of both Barack Obama in the US and the European Commission are arguing that this is needed to reduce so-called counterparty risk in the financial system, since clearing houses ensure that transactions are completed even if one party to a trade defaults.
Companies are saying that they would be unfairly penalised if such reforms were enacted because the law would oblige them to set aside extra cash – margin – to guarantee those trades. Companies generally negotiate OTC derivatives, such as foreign exchange swaps and jet fuel derivatives, with their banks and no such margin is required.
Even in the ECON committee, Eddy Weeymerch was worried about the regulatory divergences taking place between the EU and the US, not only in OTC markets but also in accountancy rules and CRAs.
© Financial Times
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