Tread carefully

6 January 2010 By Neil Unmack Follow @unmack1

European and U.S. companies don’t want to be bound by new rules forcing derivatives onto clearing houses. A carveout would distort the market. Far better to tweak bank capital charges to encourage clearing houses while allowing bilateral trades for those who really need them.

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The European Association of Corporate Treasurers on Jan. 6 wrote to the European Commission asking that companies be exempt from proposals to regulate derivatives more closely.

The European Commission has proposed driving as many derivatives as possible to be cleared through central counterparties as part of a reform bill. It is also proposing to increase capital charges for banks that engage in noncleared bilateral trades. A further element of its plan is that all trades whether cleared through a central counterparty or not should be collateralised. It plans to publish final legislation this year.

The U.S. House of Representatives passed legislation in December forcing mandatory clearing for standardised derivatives, but allowing some exceptions for nonfinancial companies. The Senate is working on its own bill.

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