EC derivatives working group meets to overhaul OTC markets

The European Commission’s working group on derivatives, established on October 22, held its first meeting in Brussels last week.

The working group is chaired by Martin Power - head of cabinet in the office of Charlie McCreevy, European commissioner for internal markets and services – and includes representatives from 16 regulators and industry bodies.

At the top of the group’s agenda is the plan to move most credit derivatives trades from the over-the-counter market onto central clearing facilities before the end of 2008. This, the commission hopes, will improve transparency and allay fears over counterparty credit risk. According to an EC memo, participants said the end-of-year deadline was “reasonable”.

Attendees of the November 5 meeting agreed to establish sub-committees to deal with specific issues, one of which will be responsible for determining which credit derivatives will go through central clearing houses and by when.

Separate committees will focus on establishing standards for central clearing houses, ensuring the EC’s work is coherent with similar initiatives in the US, dealing with price reporting, and making sure regulators have adequate information to be able to supervise the market.

The working group will reconvene in early December to outline the progress made for the various objectives.

Aside from improving operational processes in credit derivatives, additional goals of the group include finalising plans by April 2009 for how the overall derivatives market can move forward. At the October 22 meeting, McCreevy said he wanted standardisation and risk mitigation for “less liquid” instruments in other asset classes, and to look at whether the Capital Requirements Directive is adequate in its treatment of derivatives.

See also: EC demands centralised clearing by end of year
November target for CDS central counterparty