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The new EU rules mean that all trades in financial derivatives will now be cleared by a central counterparty. The central counterparty stands between buyer and seller and guarantees that both parties in a trade are always assured of getting what they are owed, even if one of the parties gets into difficulties.
This creates greater security in the system than today, where most derivatives trades take place directly between buyer and seller, and where a party is directly exposed if the other party cannot pay. The new rules reduce the risk that a crisis-hit financial institution can “infect” the rest of the financial system via derivatives markets.
Minister for Business and Growth, Ole Sohn, and Minister for Economic Affairs and the Interior, Margrether Vestager, said: "The Danish EU Presidency has an ambition to contribute to strengthening financial regulation in the EU. Therefore we welcome the success in concluding an important agreement on the regulation of trading in financial derivatives. The rules are a big step towards counteracting future financial crisis, as they reduce the risk of contagion from a crisis-hit financial institution “infecting” the rest of the financial system via derivatives markets. The Government is pleased that the Danish Presidency has demonstrated its effectiveness and focus on results, by finding a compromise which the European Parliament, Commission and Council all support."
The agreement also means that all derivatives trades will now be reported to a central register, which gives supervisory authorities a much better overview of derivatives markets, and reduces uncertainty in the market if a financial institution gets into trouble.
Finally it creates organisational and capital requirements for central counterparties. Central counterparties will often be systemically important, and it is very important that they cannot be affected by the collapse of other actors in the financial market.
By concluding this agreement, the Presidency is ensuring that the EU meets the G20 objectives in this area.
The compromise will have to be finally confirmed by the European Parliament and the Council of the European Union.