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Thursday, 29 March 2012

More transparency in derivatives trading

The European Parliament approved EU legislation by a wide margin to make trade over-the-counter (OTC) derivatives safer and more transparent. According to the EP Press service, derivatives trading is believed to have contributed to the global financial crisis.
The regulation lays down that OTC derivative contracts would have to be cleared through central counterparties (CCPs), thus reducing counterparty credit risk. All derivative contracts  would have to be reported to central data centres or "trade repositories", which would have to publish aggregate positions by class of derivatives, thereby offering market players a clearer view of the market. This work would be monitored by the European Securities and Markets Authority (ESMA), which would be responsible for granting or withdrawing their registration.
Regarding CCPs from third countries, these would be recognized in the EU only if the legal regime of the third country in question provided for an effective equivalent system for recognition. However, this does not set a precedent for other legislation on the supervision and oversight of financial market infrastructures.

Source: European Parliament