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20 April 2015

Financial Times: Clearing houses hit back at European plans

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A group of seven European derivatives exchanges operators have hit back at regulators’ plans to give investors greater choice to trading futures and options, saying law drafts underplay risks to financial stability.

The seven operators warned that advanced European plans to require derivatives clearing houses to link to each other — intended to stimulate competition and lower trading costs — pose a threat to market stability and customer protections, “especially in distressed conditions”.

The warning was delivered to ESMA by Deutsche Börse, Intercontinental Exchange (ICE), Euronext, the London Metal Exchange, Bolsas y Mercados Españoles, the Athens Exchange and the ICE-owned Holland Clearing House. They also warned that plans clashed with European rules and global standards.

The seven warned that “commercial concerns should not cloud the potential risks” created by forcing the interlinking of clearing houses with different risk management models and capital buffers. Their response was also a riposte to a letter by the London Stock Exchange Group, Nasdaq, interdealer broker ICAP and LSE-controlled LCH.Clearnet, to ESMA two weeks ago that called on regulators to open up markets and inject more competition.

The seven said European drafts did not yet fully meet the mandate set out by European policy makers to guard against systemic risk. “A fragmented market is not what the real economy needs. The end users of markets — from pension funds to asset managers, from miners to industrial companies, from farmers to manufacturers — want deep, liquid markets where they can effectively and efficiently manage price risks,” the letter said.

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© Financial Times

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