European banks urge structural deficiencies in OTC derivatives markets to be addressed via CCPs and collateralisation
04 June 2010
The EBF paper summarises the views of the European banking community on the upcoming EC proposals on OTC derivatives markets. The document covers four topics: issues around clearing of OTC derivatives contracts; Central Counterparties; Trade Repositories; and interoperability.
European banks believe that, given the importance of the over-the-counter (OTC) derivatives markets to underpin the activities of the real economy, it is paramount that the structural deficiencies in those markets are addressed as a matter of urgency. The European Banking Federation (EBF) believes that Central Counterparties (CCPs) certainly have a role to play in addressing those deficiencies, as explained in a paper it published today.
“The EBF acknowledges the benefits of central-clearing for mitigating counterparty risk and is, therefore, supportive of extending the use of central clearing for as many CCP-clearing eligible OTC derivative contracts as possible” said Guido Ravoet, EBF Secretary General. He added: “The EBF considers, nonetheless, that central clearing should be market driven as market participants avail of the relevant capital incentives. The strengthening of collateralisation in bilateral clearing is also crucial to reduce counterparty risk”
The EBF paper summarises the views of the European banking community on the upcoming European Commission proposals on OTC derivatives markets and their market infrastructures. The document covers four topics: (i) issues around clearing of OTC derivatives contracts; (ii) Central Counterparties; (iii) Trade Repositories; and (iv) interoperability.
The EBF stresses that, as the key infrastructure in the post-trading environment, CCPs must have robust governance arrangements in place and must ensure they operate on a sound and safe basis. CCPs should ensure the permanent fulfilment of their obligations in order to reduce the sources of operational risks, for them and for their participants. The EBF further calls for CCPs to have Risk Committees composed of participants in the CCP whose decisions would be binding to that market infrastructure. In addition, the EBF would be in favour of authorising the operation of CCPs at European level while the supervision of CCPs would remain at domestic level.
© EBF
