On 31 March 2010, the House of Lords European Union Committee published a report with evidence received on its enquiry into the proposed EU reform of the derivatives markets.
The Committee found that the Commission’s proposals for increasing transparency in the over-the-counter (OTC) derivatives market, through reporting OTC derivatives contracts which are not centrally cleared to a trade repository, will go some way to addressing concerns that the OTC derivatives market is opaque and ineffectively supervised. The Committee also found support for the increased use of standardised contracts and of central clearing. However, the Committee also found that there were questions as to what types of contracts will be covered by the Commission's definition of derivatives.
The Committee found that there were some concerns regarding the Commission's suggestion that central clearing for all standardised products should be mandatory. In particular, if this proposal were adopted it could increase risk by forcing clearing houses to clear products for which they cannot manage the associated risk effectively. Moreover, not all derivatives contracts are suitable for standardisation.
Overall the Committee welcomed the apparent direction of the Commission’s proposals. It will scrutinise these in detail when they emerge in the form of a draft proposal.
View The future regulation of derivatives markets: is the EU on the right track?, 31 March 2010