The European Commission has published a speech given by Charlie McCreevy, European Commissioner for Internal Market and Services, at the Derivatives Conference speakers’ dinner on 24 September 2009. Commissioner McCreevy’s speech covers derivatives and risk allocation.

In his speech Commissioner McCreevy briefly discusses the current “transatlantic consensus” on how derivatives can allocate the risks in the economy better:

  • Standardised over-the-counter (OTC) products should be cleared as far as possible by central clearing houses.
  • Central data repositories should enable supervisors to get a complete overview of where the risks are in the system.
  • For those segments of the market that may not fit CCP (central counterparty) clearing because they are too bespoke, bilateral clearing should be tightened and made more secure.

Commissioner McCreevy used the remainder of his speech to draw attention to some of the questions raised by the following issues:

  • Central clearing. How should the use of CCPs be extended beyond the two (ICE Europe and Eurex) that have started operations within the EU? Should it be by the use of incentives as regards regulatory capital, or should the use of CCPs be simply mandated? How should CCPs be regulated and supervised in the single market bearing in mind their systemic relevance?
  • Central data repositories. Should their use be incentivised or mandated? How should they be supervised? How can data quality and equal access to it by supervisors be ensured?
  • Bilateral clearing. Some derivatives are too complex to be centrally cleared and the result of incentivising central clearing is to make bilateral clearing more expensive. Should there be stricter collateral requirements or should the regulatory capital cost of bilaterally-cleared products be increased?
  • How to incentivise standardisation without stifling innovation. One possibility could be the setting of clear targets with precise deadlines and working with the industry to find ways of achieving them.
  • Do certain requirements need to be imposed for the trading of derivatives? This seems to be the route being followed by the US. There will certainly be a need for more transparency in the reporting of trades.
  • Are certain products so toxic that they should be banned? Commissioner McCreevy states that he is not sure whether banning products is the answer but is convinced that a discussion should take place.

View Charlie McCreevy speech - Derivatives and Risk Allocation, 24 September 2009