Just as in the United States, there has been a push in the EU to central counterparty (CCP) clearing for more products. “There is some concern that because it is good for CCP clearing, it’s automatically good for multilateral execution. In fact the tests are not quite the same. If you look through the history of exchanges and the new contracts they’ve tried to float, a lot of them have failed, even though they were CCP-cleared,” Belchambers says.
One of the issues that many are looking for clarity on is the impact on segregation. While there is a tension between user choice and lessons from Lehman Brothers that collateral needs to be readily identifiable, Belchambers says the EU seems to be pursuing the route of choice so that clearing firms are going to have to offer different forms of segregation and users will be able to choose what they want.
Finally, speculation has become a hot topic in Europe, with some pledging to crack down on the practice in commodities. According to Belchambers, the FOA is “very supportive of the continuance of traders operating in commodity markets for all sorts of reasons.” He went on to say that traders are important to markets and the FOA does not support the use of position limits. “We think there is a deep lack of evidence about whether [position limits] make a difference and secondly a lack of evidence about damage caused by traders in commodity markets.”
A lot of work is left to do around the world as agencies work to shore-up rulebooks. In at least one way, Belchambers says the United States has it easy. “The U.S. has the luxury of having only two political parties whereas the European parliament probably has over 50.” While he is optimistic that the 26 member-states of the EU can work out standards and objectives, he is not so sure about hard rules.