The proposed amendments are based on a host of discussions with, and surveys and opinions of, many market participants, regulatory authorities and Member States, on the current state of play with regard to discussions within the Council, and on the ECB's opinion. The amendments relate to the following:
(a) Scope
The Commission proposal, the G20 summit decisions and the Dodd-Frank Act provide for OTC derivatives to be regulated. The Council working group's suggestion that the regulation should extend to all derivatives neither is objectively justified nor has been decided on at international level.
(b) Derogations
Various market participants have called for derogations from the regulation for their sectors. However warranted individual calls and arguments may be, only the Bank for International Settlements would be exempted. For all other sectors, exemptions would require furthe market investigations and equivalent EU sectoral rules based on international standards.
(c) Non-financial counterparties
The information threshold provided for in the proposal for a regulation should be deleted, and the obligation to report details of OTC derivatives to trade repositories should apply across the board, though a de minimis rule for SMEs should be looked into. Depending on class of derivatives, the clearing thresholds to be laid down would result in costly and bureaucratic obligations. Accordingly, various qualitative and quantitative criteria need to be taken into consideration, as well as systemic relevance and risk weighting.
(d) Cooperation between national regulatory authorities and the ESMA
The Commission-proposed colleges set-up and the college opinions to be drawn up would make for a complicated authorising and supervisory system involving national regulatory authorities and the ESMA. The colleges have therefore been deleted; instead, there would be stepped-up cooperation between the competent national authority and the ESMA.
(e) Authorisation for third-country CCPs
The 'easier' authorisation conditions proposed by the Commission for third-country CCPs are a further issue. In the draft report, authorisation procedures have been extensively aligned. Only on the basis of reciprocity would the Commission be permitted to lay down total or partial exemptions from authorisation conditions or procedures.
(f) Interoperability
In the draft report as it currently stands, it is proposed that the entire Title V on interoperability be deleted. CCP interoperability arrangements would have to be examined in detail, in advance, because of the potential new, systemic risks of such interlinking for the entire financial system.
(g) Clearing obligation
Unlike in the Commission proposal, the clearing obligation for non-financial counterparties and the OTC derivatives used by them would not become effective immediately after the clearing threshold had been exceeded on a single occasion; rather, it would not apply until the threshold had been exceeded on 90 consecutive days. Subsequently, firms would have a maximum of six months in which to meet their clearing obligations.
The regulation involves difficult demarcation and standardisation issues. There must also be consistency with rules under other legislation. Should Parliament and the Council keep to their timetable, regulation of OTC derivatives could take effect by the end of 2012 at the latest.
Next steps:
· 28 February 2011: second presentation of draft report
· 15 March 2011 deadline for amendments
· 4 April 2011: deadline for amendments
· 20 April 2011: vote in ECON
· June 2011: vote in plenary.
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