EU parliament calls for tougher rules on derivatives trading

Date: Wednesday, June 16, 2010
Author: Investment Executive

European parliamentarians are looking to reign in derivatives trading, calling for a tougher line against speculators.

According to a resolution adopted by the parliament Tuesday, proposed new European rules on derivatives trading “must be made clearer and tougher, so as to reduce speculative trading and ensure that as many derivatives as possible are traded through open channels that are subject to rules.”

The resolution comes a few weeks before the European Commission publishes its legislative proposals to regulate derivative trading. And, it is expected to publish new EU draft legislation on derivatives in September.

Tuesday’s parliamentary resolution advocates “abandoning the prevailing view that derivatives need no further regulation because they are only used by experts and specialists”. Instead, it calls for strict rules to prevent inexperienced investors and speculators from building up dangerous levels of risk.

It says that the proposed legislation should include rules banning purely speculative trading in commodities and agricultural products; and that risk limits should be considered for trade in commodities and agricultural products, including greenhouse gas emission allowances, to reduce speculation and help these markets to function transparently.

In particular, the resolution says that central counterparty clearing facilities need to be strengthened, and it proposes establishing standards for CCPs. It also calls for a ban on speculative credit default swap trading; greater access to information for supervisors; and, while it contemplates lighter regulation of over-the-counter trading for corporate investors, it also recommends setting thresholds beyond which central clearing will always be required.