derivatives markets

ESMA, ISDA, and FIA Europe Publish Capital Markets Union Responses

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The European Securities and Markets Authority (“ESMA”), the International Swaps and Derivatives Association (“ISDA”) and FIA Europe have published their responses to the European Commission’s Green Paper on Building a Capital Markets Union (“CMU”).

Whilst supporting the aim of building deeper and more integrated capital markets across all of the EU, ESMA’s response stressed how its main objectives of enhancing investor protection and promoting stable and orderly financial markets can contribute to the CMU. The response contains specific proposals for improved access to credit information for SMEs and increasing cross-border retail participation in investment funds such as UCITS. ISDA and FIA Europe’s joint response highlights the crucial role derivatives play in capital markets and those derivative reforms in Europe governing clearing, margining and trading activities should be calibrated to a standard that also facilitates the efficient functioning of derivatives markets, without damaging liquidity.

FSA Update on Derivatives Reform

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On June 26, the FSA published a speech by David Lawton, FSA Acting Director of Markets, on recent progress made on derivatives reform. Speech.

Mr. Lawton reports that much has been achieved over the past year as regards meeting the G20 commitments to improve counterparty risk management and transparency in the over-the-counter (OTC) derivatives markets. In particular, the international standard setting bodies continue to facilitate the advancement of reforms across jurisdictions and industry has made good progress to increase standardisation of contracts and use of central clearing.

However, four outstanding areas remain:

  • rules for bilateral collateralisation of uncleared trades.
  • ensuring Regulators have a full range of tools to deal with recovery and resolution of central counterparty clearing houses (CCPs). EU legislation in this area is expected sometime this year.
  • getting agreement on how requirements will apply cross-border. The FSA believes that it is desirable to achieve a global system of regulation of OTC derivatives based upon mutual recognition and substituted compliance where possible.
  • ensuring the readiness of firms, both financial and non-financial, not currently clearing OTC derivative trades. Firms will need to be ready to comply with EMIR from January 2013.