January 19, 2009 / 9:34 PM / 11 years ago

France wants ECB to lead derivatives clearing push

BRUSSELS, Jan 19 (Reuters) - France wants the European Central Bank to spearhead efforts aimed at introducing central clearing for off-exchange traded derivatives and cutting risk in a sector partly blamed for the credit crunch.

A tentative European industry agreement to clear trades in the $40 trillion credit derivatives sector collapsed earlier this month, with big dealers balking at EU pressure to clear their European trades only in Europe.

Instead, they want to clear all their global trades in one clearing house, preferably in the United States to save on capital they must tie up to back trades.

French Economy Minister Christine Lagarde wants the Eurosystem — made up of the European Central Bank and national central banks in the 16-nation single currency area — to push the dealing community towards a speedy solution.

“Christine Lagarde will propose to the president of the European Central Bank, the president of the Eurogroup and European Commissioner Charlie McCreevy to give the Eurosystem a role in speeding up bank industry deliberations and reach a speedy solution to clear off-exchange traded derivatives in the euro zone,” the French Finance Ministry said in a statement.

McCreevy, who has powers to propose mandatory financial rules, has given up on obtaining a voluntary agreement from industry to clear credit derivatives trades by mid-2009.

“We will come forward with a proposal rather soon. The objective is going to be that centralised clearing is being introduced via rules at the European level,” his spokesman said.

The credit derivatives industry said it would clear its trades centrally.

“The industry supports central clearing and has made a commitment to that on both sides of the Atlantic,” said Richard Metcalfe of the International Swaps and Derivatives Association.

Exchanges and trading platforms are already vying to offer clearing services, with B-Clear of NYSE Euronext NYX.PA launched last month though with little volume so far.

Eurex Clearing, part of Deutsche Boerse (DB1Gn.DE), will launch a credit derivatives clearing service in coming weeks.

“We would welcome a (European) Commission initiative to bring more transparency and security into the market,” said Judith Hardt of the Federation of European Securities Exchanges.

“We are supportive without being for one particular industrial solution. It should extend beyond clearing to reporting trades as well,” Hardt said.

In the United States, where regulators are also pressing for centralised clearing, rival services from ICE (ICE.N) and CME CME.N are going through the regulatory approval process.

Dealers said on condition of anonymity that clearing of credit derivatives would have already started by the time any EU legislative action took effect.

“It’s a certainty the market will move without a mandate but the dealers will do it on their own terms and their own timetable,” one dealing company said. (Editing by Dale Hudson)

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