* Ministers agree rules for $700 trillion market
* Germany's Schaeuble - agreement reached
* French bid to win backing for transaction tax fizzles
By Claire Davenport and John O'Donnell
BRUSSELS, Jan 24 The European Union came a
step closer to overhauling regulations for the $700 trillion
derivatives market on Tuesday, one of the most opaque sectors in
The EU rules, which could be in place by the end of the
year, will overhaul a market that boomed in the run-up to the
financial crash, demanding deals done off an exchange pass
through a clearing house that pools emergency back-up capital.
Crucially, each sale, which in the past has sometimes been
recorded by no more than a fax, will be registered centrally for
regulators to see.
Agreeing rules will be a milestone in the European Union's
programme to reform finance, one which analysts believe has lost
its way as the bloc continues to grapple with problems at its
banks and a sovereign debt crisis. Washington established a
similar framework for derivatives in 2010.
"We have reached a common position," said Germany's Finance
Minister Wolfgang Schauble on Tuesday.
The countries will now put their position to the European
Parliament for approval.
Writing laws to regulate finance has driven deep divisions
between the region's top powers, Germany, France and Britain,
which wants to protect the City of London, which accounts for 9
percent of Britain's economy.
On derivatives, France and Britain had clashed over the
powers that a pan-European watchdog will have, with Britain
pushing to keep its autonomy in supervising London, which
together with New York has the lion's share of derivatives
George Osborne, the British chancellor of the exchequer,
left the meeting in Brussels, content, said one official, that
no further powers have been given to the European Securities and
Markets Authority (ESMA) than originally envisaged.
Ultimately, ESMA is responsible for taking the final
decision on regulation to bring order to the huge market for
derivatives, such as those that hedge the risk from price moves
on oil, gas or other commodities.
But on Tuesday, finance ministers agreed safeguards,
introducing a voting mechanism among national supervisors that
could prevent ESMA getting the final say on whether a clearing
house can clear trades in a foreign market.
The dispute between France and Britain is mirrored elsewhere
in financial reform.
On Tuesday, France struggled to attact interest when it
presented its blueprint for a tax on financial transactions to
an audience of EU finance ministers.
"The debate was short," said one EU official, speaking on
condition of anonymity.
Paris plans to introduce the tax, which would be imposed on
the trading of shares or company bonds, regardless of whether
other countries follow suit.
Politicians are hoping it will be popular with voters ahead
of elections in France but Britain already has a tax on share
trading and does not want a wider scheme imposed by Brussels,
fearing it would drive away business from the City of London, to
global rivals such as New York.
"The French are overwhelmingly in favour of this tax -- both
left and right wing voters -- for cultural and historic
reasons," said Stephane Rozes, professor of political sciences
at French university HEC Sciences Po.
"They want to make their economy more independent from
finance, which many now see as an obstacle to development. From
an economic point of view it makes no sense."
France intends to levy a charge not just on the trading of
shares but also on trading financial instruments such as
The German government supports a tax on financial deals, but
concedes that the tax may not win the backing of Britain and
Sweden. Stockholm saw trading migrate to London when it
introduced a similar tax in the mid 1980s.
Other EU countries including Italy and Belgium are open to
the idea but undecided. "The discussion on transaction tax is
unavoidable," said Elio Di Rupo, Belgium's prime minister after
meeting Italian premier Mario Monti.