FT: EC official urges OTC derivatives reform

02 March 2011

Patrick Pearson, head of the Commission’s unit spearheading reform of the OTC derivatives markets, told the Economic and Monetary Affairs Committee of the EP on Monday that the European Market Infrastructure Regulation (Emir) should be extended to so-called listed, or on-exchange, derivatives.

European regulations to reform derivatives and clearing markets should be extended to exchange-traded derivatives and not limited to over-the-counter (OTC) products, according to the top official in charge of the European Commission’s financial reforms. The development marks a fresh drive by European regulators to push for more competition in derivatives markets in a bid to break up virtual monopolies in on-exchange futures and options markets – such as the one operated by Deutsche Börse, the German exchange. The UK Treasury is understood to support Mr Pearson’s view.

A furious lobbying battle has broken out between proponents of greater competition in all derivatives markets – such as the banks that are large customers of exchanges, opposed to such silos – and exchanges that own their own clearing houses. Deutsche Börse has been at the forefront of efforts in Brussels to keep its model intact. Mr Pearson’s comments cast a cloud over the proposed combination of Deutsche Börse with NYSE Euronext, unveiled two weeks ago. That would create the world’s largest exchange, ahead of the CME Group of the US by revenues. Its rationale is partly based on the survival of the group’s vertical silo and its ability to squeeze savings and greater revenues from it.

The deal would cement the position of Deutsche Börse’s Eurex derivatives exchange, since it would involve folding it in with the NYSE Liffe derivatives business run by NYSE Euronext. That in turn would create a derivatives powerhouse in Europe, with clearing running exclusively through the Eurex Clearing business that Deutsche Börse controls.

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