EU plans to ease derivatives rules in bid to boost economy

BRUSSELS/LONDON (Reuters) - The European Union has proposed easing derivatives rules in a move which will save pension funds billions of euros, as it seeks to boost growth in the bloc.

European Commission Vice-President for the Euro and Social Dialogue Valdis Dombrovskis holds a news conference at the European Commission in Brussels, Belgium May 4, 2017. REUTERS/Eric Vidal

New rules were introduced in 2012 after the sector was blamed for accentuating the 2007-09 financial crisis. Policymakers are now trying to help drive growth by cutting red tape for companies and investors, though not for big banks.

The European Commission proposed a draft law on Thursday to continue shielding pension funds - a sector it sees as critical for investment in infrastructure - from having to clear their derivatives trades for a further three years, a move to save them billions of euros in collateral payments.

“Our aim is to simplify rules as well as to eliminate disproportionate costs and burdens to small companies in the financial sector, corporates and pension funds,” European Commission Vice President Jyrki Katainen, said in a statement.

Brussels is trying to encourage companies to use markets to raise funds and wean them away from a reliance on bank loans.

But it has made slow progress, suffering a knock after Britain, by far the EU’s biggest capital market, decided to leave the bloc in 2019. Efforts to revive securitization, a form of debt security, have also stalled.

Thursday’s plans, which need approval from the European Parliament and EU states to become law, are among the first after a root-and-branch review of financial rules.

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As reported by Reuters, only one side of a derivatives trade would have to report it, helping to cut costs.

The commission said such changes could save market participants, especially energy companies and manufacturers, up to 2.6 billion euros in operational costs and up to 6.9 billion euros in one-off costs.


Brexit has also prompted the commission to look again at how derivatives are cleared, a process carried out by a third party to ensure a trade is completed.

Euro zone policymakers have said that the bulk of clearing of euro-denominated securities like derivatives and bonds should move to the single currency area.

The London Stock Exchange's LSE.L LCH clearing house clears most euro-denominated trades, but this activity will be outside the bloc's legal framework after Brexit.

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The commission said it intends to present further legislative proposals before the summer.

European Commission Vice President Valdis Dombrovskis said an assessment on two new options has started - closer supervision of clearing houses outside the EU, and requiring those who clear large amounts of euro-denominated securities to be located inside the bloc.

“At this stage we are not jumping to conclusions,” Dombrovskis told a news conference in Brussels.

Maintaining the existing “equivalence” regime for recognizing foreign clearing houses was also being considered.

Dombrovskis said clearing houses in the United States or Hong Kong were not considered to be “systemic” in the EU, so they don’t require closer attention.

Reporting by Huw Jones; Editing by Elaine Hardcastle