Patrick Pearson for the Commission: one of the main problems in tackling derivatives is that the corporate end users utilize underpriced contracts which do not reflect the real risk. It is important to identify which end users are systemically risky and control them.
At the ECON Committee meeting OTC rapporteur Werner Langen (EPP/DE) summarised the current state of play vis a vis the Commission proposal and what future policy actions may be. Being the first exchange of views, it focused more on a presentation of ideas than a Q&A session.
Kay Swindburne (ECR/UK) said we all know that derivatives are complex. She also mentioned that it would be helpful to have a differentiation on products and not treat all contracts the same way. This means not having standardized contracts since not all derivatives products behave in the same way. Another key aspect to achieving an efficient legislation is to know who the end users of derivatives are.
Vicky Ford (ECR/UK) raised the issue of speculation with agricultures commodities through derivates and said that it is not only about prices in the agriculture sector but also in oil and other sectors. There is a need to get some expert guidance on this issue so it can be properly tackled.
Shadow rapporteur on this dossier Sharon Bowles (ALDE/UK),said it is important to maximize the use of central clearance. Derivatives were not the cause of the crisis, but because of the financial crisis new concerns appeared relating to financial products, as in the case of derivatives. The problem with derivates has been that in some contracts the risk was under-priced and this created false expectation of the risk controlled. She proposed to introduce accounting standards on hedging so is will be possible to differentiate between legitimate hedging and speculative hedging. She also made the point that access to clearing venues should not be discriminatory and should not create risk concentration.
Patrick Pearson for the Commission said he agrees with most of what was said by MEPs during the first exchange of views on derivatives. He emphasized that derivates are global products. This means there should be a global regulation and sensible regulation to achieve a more safety financial system.
He then summarised the areas the Commission is working on:
· First, there is full agreement that central clearing is needed; it has been proved that it works well and removes risk from the system. Again, the problem is that not everything can be centralized; it is key to determine what can be centralized.
· Second, corporate end users use derivatives to control risk. The problem is that there were contracts that were under-priced and therefore did not reflect the real risk. The corporate end users are part of the financial system. However, there are not many corporate end users that are systemic, so the issue is to identify which end users are systemically risky and control them.
· Commodities speculation is one priority for the Commission and they are closely working with colleagues in DG agriculture to better understand the challenges.
· Finally, he said that on the Council level, they have already established working groups on derivatives. The Commission is preparing workshops with experts in order to have an exchange of views and understand what the industry needs.
Werner Langen (EPP/DE) concluded by saying that he will consider suggestions in order to write the opinion report. He would like to find a solution to bilateral agreements that are not controlled and to reduce the risk on these types of arrangements. He believes derivates must be regulated.
The ECON Chairwoman finished by presenting next steps. The Opinion report will be published 22 February and the deadline for amendments is 1 March. She also mentioned that there will be a hearing on this issue but the date will soon be fixed.
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