Treasury groups hail proposed EU derivatives reforms

Industry bodies welcome planned amendments that could save corporates billions of euros in operating costs

Proposed changes to rules around the EU derivatives market have been warmly received in a joint statement from a clutch of major trade groups – among them the European Association of Corporate Treasurers and the International Group of Treasury Associations.

Unveiling the plans in Brussels on 4 May, officials from the European Commission said that the reforms would provide “simpler and more proportionate rules for OTC derivatives, to reduce costs and regulatory burdens for market participants without compromising financial stability”.

Describing the reforms as “better regulation in practice”, the Commission stressed that they are “essential” for completing the much-heralded Capital Markets Union (CMU) project – and could save corporates billions of euros in operating costs.

The proposals – which seek to amend the landmark European Market Infrastructure Regulation (EMIR) – play out along four, parallel strands:

1. Reporting requirements These will be streamlined for all counterparties – a measure designed to “considerably reduce” the administrative burden, while ensuring that “the quality of data needed for monitoring derivatives markets and identifying financial stability risks is not lost”. For example, to reduce the burden for all non-financial counterparties (NFCs) – ie, corporates – intragroup transactions between firms in the same group will no longer have to be reported, if one of the counterparties is an NFC.
2. NFCs Under current rules, NFCs are required to clear all derivatives. However, the Commission now proposes that, if NFCs exceed the clearing threshold for one class of derivatives, they should clear only the asset classes for which they have breached that threshold. This measure, it says, will reduce corporates’ workloads as they will only have to centrally clear the asset classes in which they are most active.
3. Financial counterparties The Commission proposes a uniform clearing threshold for smaller financial counterparties – such as small banks or funds – based upon the volume of their OTC derivatives transactions. “While all financial counterparties are required to report and collateralise OTC derivative transactions,” the Commission notes, “only counterparties exceeding that threshold would be required to clear centrally.”
4. Pension funds A new, temporary exemption will provide pension funds with a three-year break from central clearing. Says the Commission: “This will allow the various counterparties involved – including pension funds, central counterparties and the clearing members that provide clearing services – to develop a solution that enables pension funds to participate in central clearing, without negatively impacting the revenues of future pensioners.”

Commission financial stability and CMU chief Valdis Dombrovskis said: “EMIR is at the heart of the EU’s financial reforms. [Our] proposal ensures that EMIR achieves its objective of reducing systemic risk in the OTC derivatives market, while keeping costs to a minimum for the real economy.”

His colleague Jyrki Katainen – Commission vice-president for jobs, growth, investment and competitiveness – added: “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.

“The targeted changes will deliver real benefits for the industry, without endangering financial stability. Building on consultations with stakeholders, this is a prime example of better regulation.”

In their joint statement, the trade groups – which also included European Issuers and the Coalition for Derivatives End-Users – described the proposals as “an important step forward in reducing the burdens on corporates”.

They added: “We look forward to working with [the European] Parliament and member states to ensure they deliver their intended, positive impact for Europe’s economy as a whole.”

The proposals are now subject to an eight-week consultation, after which they will be discussed in the European Council and Parliament.

Find the Commission’s proposals in full, plus supporting documents, here.

Read the trade groups’ full joint statement here.