LONDON, March 5 (Reuters) - Britain faces another major setback on new European Union financial rules as plans to increase competition in derivatives look likely to be diluted or even ditched after opposition from Germany and others.
UK Finance Minister George Osborne was isolated on Tuesday in his attempts to secure any major easing of an EU law to cap bankers’ bonuses from next year.
He is also backing a separate law, still at the scrutiny stage and known as MiFID, which proposes “open access” to give investors a choice of where to clear their derivative, stock and bond trades.
Britain, anxious to retain London’s status as one of the top global markets for derivatives and Europe’s biggest financial market, is keen to encourage competition.
However, documents obtained by Reuters show that the EU’s Irish presidency has been unable to broker a deal yet on open access and licensing of stock indexes as several countries, including Germany, Spain, Austria and Luxembourg, want to curtail or even scrap the open access and benchmarks provision.
The European Parliament, which has joint say on the MiFID law, has already voted to add tough conditions and exemptions on choice of clearer, much to the relief of big trading-to-clearing exchanges like Deutsche Boerse.
“On MiFID I would urge members to stick to the proposal to open up access,” Osborne told a meeting of EU finance ministers in Brussels on Tuesday. Open access is part of the strong single market elements in MiFID, he said.
Opacity in derivatives played a central role in the 2007-09 financial crisis and world leaders want chunks of the $640 trillion off-exchange market for credit default swaps, interest rate swaps and other derivatives put through clearing houses.
Clearing is where trades pass through a third party that is backed by a default fund so that it is completed even if one side goes bust.
As clearing becomes mandatory, Britain wants competition to flourish and avoid giving trading-to-clearing exchanges an unfair advantage.
The London Stock Exchange is buying its own clearing house, LCH.Clearnet, and Atlanta-based IntercontinentalExchange has signed a deal to clear derivatives trades for NYSE Euronext in Europe.
It can be difficult, even impossible for an investor who trades on many of Europe’s exchanges to clear them elsewhere.
MiFID proposes ending such hurdles and forcing exchanges that own popular benchmarks, such as Deutsche Boerse’s STOXX indexes, to grant licences for rivals to trade them.
European parliament lawmakers who voted for tough conditions and exemptions argue, as do member states and the bourses, that choice of clearer would fragment markets and create risks.
MiFID also proposes new rules for trading derivatives on electronic platforms to improve transparency.
The United States has already written its own set of derivatives trading rules which impinge on foreign dealers.
EU financial services chief Michel Barnier told ministers that delay in approving the rules was being used by the United States to justify a unilateral approach.