Derivatives Regulation (Communication)
Both the EU and the USA are currently debating how to design derivatives markets in a more transparent and panic-proof manner. Similar to the USA the EU Commission proposes to improve the collateralisation of derivatives transactions and to standardise the OTC trading through central counter party (CCP) clearing to be located in the EU.
Clearing through central counterparties (CCP) reduces the default risk of derivatives and increases the stability of financial markets. However, only credit default swaps (CDS) should be cleared through a central counterparty (CCP) until the systemic danger of interest rate derivatives and foreign exchange derivatives has been demonstrated. The regulation of the authorisation, activities and risk management of CCPs, as well as the establishment of trade repositories at EU level, is to be welcomed. The increase of bilateral clearing costs will lead to the degradation of risk management.