Derivatives traders face easier reporting, clearing rules in draft EU bill

4 May 2017 2:42pm

1 May 2017. By John Rega.

Derivatives traders stand to get easier reporting and clearing requirements under an EU proposal to streamline rules for the multitrillion-dollar swaps market.

Dealers could shed the obligation to report on past trades and delay the start of mandatory clearing for some contracts, under the draft European Commission bill, scheduled for release this week, obtained by MLex.

Those measures, along with other waivers for small financial companies and pensions, aim to dial back requirements from a 2012 law responding to the financial crisis.

Policymakers say the legislation made over-the-counter derivatives safer by reporting trades to regulators and sending standardized contracts to clearinghouses for managing the risks. But firms as well as regulators have called for revisiting provisions that have been hard to put into practice.

"While the initial results are satisfactory, there is room for simplifying the requirements without putting financial stability at risk," the commission says in the draft legislation to amend the 2012 European Markets Infrastructure Regulation.

Pension funds, already benefiting from a temporary waiver from having to clear trades, would get an extra three years, under the proposal.

The extension aims to buy time for regulators to work out how the retirement vehicles could join clearinghouses without having to hoard cash for the sake of posting the collateral required. Pension funds say they tend to use derivatives, such as interest-rate swaps, to hedge risks and protect retirees.

Under the proposed changes, small financial companies could remain exempt from mandatory clearing, as long as their trading stays under certain thresholds — the same as for non-financial companies. The smaller players are now benefiting from a temporary waiver, offered to relieve them of the cost and technical complexity of gaining clearinghouse members.

Derivatives clearinghouses — such as Deutsche Börse's Eurex Clearing or London Stock Exchange Group's LCH.Clearnet — would also have to make their services easier to access, under the proposal due to be introduced by the EU executive arm on Wednesday, May 3.

Clearing services would have to be available on "fair, reasonable and non-discriminatory commercial terms," the draft bill says.

Small financial companies could rely on their bigger counterparts to file transaction reports, as part of the burden-reducing proposals.

Derivatives dealers would also no longer have to report on past transactions. The end of "backloading" aims to relieve firms of the need to build up data on contracts struck before the current rules took force.

Under the proposal, big traders would be free from having to "frontload" the clearing of contracts. Under current rules, the firms have to clear trades carried out before the date that clearing became mandatory, if they were in position to anticipate the requirement.

Fintech Regulation in 2018