LONDON Jan 21 The European Parliament may
demand a rethink of new rules designed to make derivatives
markets safer in the wake of the financial crisis, potentially
leading to months of uncertainty for banks that are big users of
Members of the Parliament are discussing a resolution which,
if approved next month, would trigger a formal review of the
rules, two sources from the European Parliament said.
"The draft resolution is being put together now. There are
legitimate concerns," one of the parliamentary sources said.
The issue is with exemptions from the rules for
"non-financial" companies, such as airlines, which use
derivatives to hedge fuel costs.
If the Parliament approves a resolution rejecting some of
the rules, the European Commission and the European Securities
and Markets Authority (ESMA) will have to come up with
alternatives, which could leave banks and markets guessing what
they should prepare for.
The rules are a response to an international push to make
derivatives markets more secure after the crisis by introducing
central clearing for certain products.
Clearing ensures a derivatives trade is completed and
provides back up if any parties run into financial difficulties.
It also introduces greater transparency for these opaque
markets, which was lacking when U.S. bank Lehman Brothers went
bust in 2008.
But the Parliament considers that exemptions for users of
derivatives from the "real economy," such as airlines, are not
Airlines, for example, which use derivatives to insure
against spikes in jet fuel prices, have been given exemptions
from clearing the derivatives if their value is below a
threshold set by regulators.
Members of the European Parliament say the threshold has
effectively been set at too low a level.
They also object to non-financial firms having to clear all
classes of derivatives even if they only hit the clearing
threshold in one asset, such as commodities.
If the Parliament goes ahead with its challenge to the
rules, this would be the first time it has used certain powers
under European Union law, a sign that it is becoming more
The United States also needs to finalise some of its
derivatives rules and regulators globally are holding meetings
to iron out overlaps between rules from different jurisdictions.