NVB: response to the Commission's consultation on OTC derivatives.
02 September 2009
NVB rejects any further moves towards a large scale standardisation of derivatives contracts per se.
The Nederlandse Vereniging van Banken (NVB / Netherlands Bankers Association) and the Dutch Advisory Committee Securities Industry (DACSI) together represent the voice of the Dutch wholesale banking market and published a joint response to the Commission consultation on OTC derivatives.
General remarks:
- NVB supports efforts to standardise the processes related to clearing derivatives but reject any further moves towards a large scale standardisation of derivatives contracts per se.
- NVB remarks that central clearing of derivatives does not depend on derivatives contracts being traded on a regulated market.
- It should be well understood that regulated markets are functionally complimentary to, and not a substitute for, the OTC space. A priori, the Dutch market is concerned with the Commission’s hypothesis that it could be desirable and possible to move part or all of Derivatives trading on exchange.
- The OTC markets are dynamic. Market evolution is necessary and welcome and the restoration of the health of the financial markets should not be hampered by overly stringent regulation introduced in times of crisis.
- There is a general consensus in the market around the specific changes that need to be made in the way OTC markets operate.
- Overall, NVB feels that the European Commission has identified the right issues to consider in its consultation document and benefits from wider coordination with global partners on the issue.
- NVB reiterates its concern with the assumption that trading derivatives on exchange is either necessary or desirable to enhance long term financial stability.
Finally, in relation to the link the Commission makes between transparency and applying the MIFID rules, NVB of course respect the MiFID rules in this regard and it is right that a framework for fair competition exists for trading equities between regulated markets, MTFs and systematic internalisers. However, it is generally accepted that the MiFID rules were designed specifically with the equities markets in mind where trades are generally small tickets but high volume. A simple read across of MiFID rules to the derivatives space would therefore be inappropriate and damaging for efficient risk management. Better then to focus on harnessing the information captured by the central data repository and the CCPs to address regulatory concerns as regards the transparency surrounding Derivatives trades.
© NVB
