Reuters: EU derivatives law change spurs competition hopes

04 April 2011

European Union states want to extend a draft law curbing risk in privately negotiated derivatives to the whole sector, which could ultimately dent profitability of the world's first mega bourse merger.

The bloc is scrutinising European Commission plans to regulate how derivatives contracts traded in the $600 trillion over-the-counter (OTC) sector should be centrally cleared. Its latest compromise omits OTC from its title, meaning the law would cover all derivatives market.

The draft law has become politically heated since Deutsche Börse unveiled a $10.2 billion plan to merge with NYSE Euronext  to create a vertically integrated group with 94 per cent of futures trading in Europe. Building a bigger derivatives footprint is a core driver of the merger to create the world's biggest exchange, one to compete with derivatives powerhouse CME. Over a fifth of tie-up synergies will come from clearing.

"The inclination among OTC derivatives fans like us is 'why differentiate between one derivative and another?'," said David Clark, chairman of the Wholesale Markets Brokers' Association. "The big deal in all this is the competition element with Deutsche Börse. This move to extend the scope of the draft law has got politics written all over it," Clark said.

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