Exclusive: EU to ease derivatives rules, holds fire on euro clearing changes

LONDON (Reuters) - The burden of new regulation for derivatives markets would be eased and competition increased under proposals from the European Union’s executive, a document seen by Reuters showed, which omitted any moves to curb euro clearing in Britain after Brexit.

Under the plans, which bankers expect the European Commission to publish next Wednesday, pension funds would be given a further three year exemption from an obligation to clear their derivatives trades, avoiding a need to tie up billions of euros in collateral to back transactions.

“The proposed modifications will reduce compliance costs and the burden imposed on market participants,” a draft of the proposals seen by Reuters said.

Banking industry officials said attempts to potentially curb clearing of euro-denominated contracts in Britain after Brexit has been put back to at least the end of June - well after the UK general election.

The EU Commission had no comment on the document or on the discussion of euro clearing.

The London Stock Exchange has said that a shift in euro clearing to the continent would mean the loss of thousands of jobs in the City.

The EU made derivatives more transparent after their opacity accentuated the 2007-09 financial crisis.

“The proposed modifications will reduce compliance costs and the burden imposed on market participants,” the document said.

Since the crisis all trades must be reported to a trade repository, and the EU executive proposes to raise the upper limit to 200,000 euros ($217,780) for fines for rule breaches at repositories in a bid to improve the quality of data.

The EU executive also proposes that only one party to a trade, rather than both at present, should report it - bringing the bloc in line with the United States.

Improving access to clearing will allow more market participants to manage risks and reduce the likelihood of sudden shocks and business disruption, the document said.

The EU executive proposes giving itself new powers to temporarily suspend the current obligation to clear some types of derivatives trades.

EU states and the European Parliament must approve the proposals for them to become law.

The executive is under pressure from the European Parliament and member states to shift clearing of euro-denominated derivatives to the euro zone from London, which currently dominates the activity.

This, policymakers have argued, would give the European Central Bank direct oversight after Britain leaves the EU.

“There had been talk of some kind of clearing location policy. We hear that’s still on the table, but may not be included in the text next week,” an industry official said.

The commission has scheduled further, unspecified “amendments” to the derivatives rules at its meeting on June 28.

Additional reporting by Francesco Guarascio in Brussels; Editing by Rachel Armstrong and Elaine Hardcastle