FT: EC proposes incentives to use central clearers

14 February 2011

The proposal is outlined in a consultation paper released by the European Commission this week, and is designed to be an incentive for banks to use central counterparties (CCPs) to clear their OTC trades.

Brussels is proposing that banks will have to hold less capital against exposures to central counterparties which meet EU standards than against over-the-counter (OTC) derivatives. The consultation paper suggests that the capital treatment of bank exposures to CCPs should be based on the compliance of the CCPs with the rules which were set for central counterparties in draft OTC legislation released by Brussels in September.

The paper proposes that the capital requirement for exposures to those CCPs which meet those standards should be “significantly lower” than the capital requirement for OTC derivatives. “Consequently, imposing different capital requirements for centrally cleared derivatives and non-centrally cleared derivatives will provide further important incentives for banks to use CCPs more widely,” commission officials said on Wednesday.

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