Under the new rules, banks, hedge funds and other financial institutions that buy and sell derivatives will be encouraged to move away from the unregulated 'over-the-counter' market, which accounts for more than 90 per cent of trades.
Instead, trading will be standardised so that it happens on open exchanges, with settlement cleared centrally. Those that do not shift to exchanges will face higher charges to reflect their extra riskiness, which will make it more expensive to trade.
The new rules mean that all deals, whether on or off exchange, must be recorded centrally, which supervisors hope will make it easier to monitor the market and intervene to avoid a repeat of the chaos surrounding the 2008 collapse of Lehman Brothers.
Under the new rules, which were discussed with industry for a year before negotiations moved to the parliament and EU Member States, all CDS trades would be recorded, making forecasting such a fallout easier.
"This should prevent another Lehman, whose collapse left those who had signed up to derivatives deals with it carrying the costs", said Graham Bishop, an expert on European financial policy. "The biggest change is that derivatives will be standardised and cleared centrally - as far as reasonable. That means that capital will have to be retained to cover the risk of these transactions."
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