EU seeks to resolve U.K.-Germany split on derivatives clearing

June 10, 2013 02:44 PM
Plan part of larger overhaul

European Union nations will seek a deal on how far exchanges such as Germany’s Deutsche Boerse AG should be forced to open up their derivatives-clearing services to competition as part of an overhaul of the bloc’s financial market rules.

Ireland, which holds the EU’s rotating presidency, is urging nations to accept “difficult compromises” to clinch a deal on the draft plans, which triggered clashes between Germany and the U.K., according to an EU document, dated June 10, obtained by Bloomberg News. Finance ministers may be called on to break the deadlock when they meet later this month if diplomats fail to find a deal, it said.

“Clearing access has been a very polarized issue,” according to the document. Ireland is seeking agreement on a compromise that would hand clearinghouses some rights to access rivals’ trade data, while building in “sufficient safeguards” to protect market stability.

The U.K. and Germany disagree over the competition plans, which target exchanges such as Deutsche Boerse that channel trades through their own in-house clearing services. While the U.K. has argued that greater competition will reduce costs for investors, Germany has said that the plans would fragment markets and harm financial stability. Both nations have garnered support from other EU states.

A spokeswoman for Ireland’s EU presidency declined to comment.

‘Speculative Trading’

Michel Barnier, the EU’s financial services chief, proposed overhauling the bloc’s Markets in Financial Instruments Directive, or Mifid, in 2011 to counter “speculative trading activities” and implement agreements reached by the Group of 20 nations.

Aside from the derivatives-clearing rules, the proposals seek to push more trading onto regulated markets, toughen oversight of high-frequency trading, and limit the size of positions on commodity derivatives markets.

The draft law must be adopted by governments and by the European Parliament before it can take effect. Legislators in the assembly agreed on their negotiating position last year.

Clearinghouses such as LCH.Clearnet Group Ltd. and Deutsche Boerse’s Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default.

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