Public hearing on OTC derivatives organized by the EP ECON committee
28 April 2010
Most of the speakers advocated specific rules for the end users as the one size fits all approach may critically damage their business. EACT Raeburn said that if an end-user is using derivatives to mitigate risk and it does not pose systemic risk then they should be exempted.
Mr Jean-Pierre Jouyet
, Chair of the CESR Standing Committee on Post-Trading presented the main issues that supervisors are carefully looking at:
· Standardization should be focused on processes, legal framework, and some products.
· Clearing houses need to be regulated almost as if they were credit institutions, clearing houses should also be located in the area of the reference currency where the transaction is taking place. He also stressed that not everything can be cleared thought CCPs.
· Information recording is essential in order to know who is buying what from whom. Trade repositories will give an overview of all transactions and it will improve the macro prudential supervision of derivatives markets. Thanks to the recording there will also be a control on the misuse of derivatives. He mentioned that supervisors are considering two types of repositories: a single international trade repository and the second possibility is to have one repository in each of the main trading blocs – in both cases EU regulators must have access with no restrictions to the data needed.
· Regulators should review MAD considering the OTC market.
Henrik Paulsson, responsible for European derivatives from NASDAQ OMX, supports the proposal of a Central CCP. However he emphasized that it is essential that CCPs are independent in order to ensure that there is no conflict on risk management. On corporate end users, he believes there is a need for specific rules as the one size fits all approach does not work.
Blythe Masters, Head of Global Commodities from JP Morgan, advocates for transparency in the market and believes central CCPs are an effective way of reducing systemic risk.
Richard Raeburn, Chairman of European Association of Corporate Treasurers, stressed that derivatives reduce risk and if corporations are not able to hedge their risk trough them, it will then drain liquidity form productive investments.
Rapporteur Werner Langen (EPP/DE), raised the issue of how far standardization can be taken. Most of the speakers said that contracts standardisation of OTC derivatives is not feasible.
Sharon Bowles (ALDE/UK), encouraged the speakers to talk more on the role played by derivatives in the Greek crisis. Blythe Masters from JP Morgan said that CDS are not the cause of a government deficit.
Kay Swinburne (ECR/UK), asked whether a flexible approach to the CCPs were possible. Mr Raeburn said that if an end-user is using derivatives to mitigate risk and it does not pose systemic risk then they should be exempted.
The scheduled ECON committee vote on the Langen report is 4 May. However, the ECON Chairwomen said that they may need to delay the vote.
The Commission is expected to present its proposal on CCPs in mid-June.
Presentations:
Jean-Pierre Jouyet, Chair of the French AMF, Chair of the CESR Standing Committee on Post-Trading (View)
Henrik Paulsson, Responsible for European Derivatives, NASDAQ OMX (View)
Blythe Masters, Head of Global Commodities, JP Morgan (View)
Hakan Feuk, Senior Manager E.ON Energy Trading (View)
Richard Raeburn, Chairman European Association of Corporate Treasurers (View)
Jon Eilbeck, Managing Director, Chief Operating Officer, Deutsche Bank (View)
