Meanwhile, the industry has sounded notes of caution in response to the European Commission’s Public Consultation on Derivatives and Market Infrastructures, issued in June.

Render unto CESR

CESR has published two consultation papers on OTC derivatives. The first, Standardisation and Exchange Trading of OTC Derivatives, discusses standardising derivatives and assesses present market-led initiatives. It covers the feasibility of trading OTC derivatives on exchanges and examines the level of standardisation that OTC derivatives must meet to be eligible for trading on a platform.

The second paper, Transaction Reporting on OTC Derivatives and Extension of the Scope of Transaction Reporting Obligations, seeks views on ways to organise transaction and position reporting on OTC derivatives.

It discusses two options: establishing a single reporting regime for both transaction and position reporting, based on reporting through trade repositories; or defining a new position reporting regime through trade repositories and allowing Mifid transaction reporting through trade repositories. The paper also discusses extending the scope of transaction reporting obligations.

FOA warns on capital

A separate consultation exercise, the European Commission’s Public Consultation on Derivatives and Market Infrastructures, closed on July 10.

The EC asked for comments on clearing and risk mitigation of OTC derivatives; requirements for central counterparties; interoperability; and reporting obligations and requirements for trade repositories.

In a joint statement, the Futures and Options Association and its own European Industry Council praised “the degree of industry consultation” and the exemption of non-financial end users from “some of the more onerous clearing obligations”. The bodies favour allowing bespoke contracts to remain available.

But the statement warned: “The associated capital requirements should not be so disproportionate as to render their use uneconomic”.

The industry bodies voiced worries that the EU may not conduct a public consultation before deciding who regulates CCPs and expressed concerns about the Commission’s desire to avoid taking a segmented policy approach to the OTC derivatives market. Finally, they recommended that the Commission should investigate whether the advantages of mandating interoperability between clearing houses were not outweighed by increased risk.

Börse spies conflicts

Deutsche Börse commented that proposals that every clearing house should have a risk committee could create conflicts of interest between market participants.

It said: “the scope of the risk committee as described is too far-reaching and opens up the potential for conflicts of interest that threaten the integrity of the . Given the diverging interest between risk appetite and margin level from market participants, it should be ensured that CCPs as risk managers remain neutral and independent from the influence of risk-takers.

“The decision making on risk management measures should rest solely with the CCP management and oversight on risk management solely with regulators. The risk committee should be seen strictly as a sounding board and advisory group for the executive management of the CCP.”

On interoperability, Deutsche Börse argued that “CCPs should be able to decide on the basis of their risk management requirements whether to connect other trading platforms to the services of the CCP. Automatic access cannot be taken lightly, given legal and technical complexities.”

(Image by Franz-alpin)