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European agreement on derivatives : an important step towards safer and more transparent markets

French banks have all along stressed the need to improve the functioning of the markets. They are therefore pleased with the 9 February adoption in principle of a European rule* that will better organise over-the-counter trading of derivatives. This is an important step towards safer and more transparent function of the derivatives markets, and is in accordance with G20 objectives. Indeed, the financial crisis had demonstrated that the lack of information on these markets and the lack of risk clearing exacerbated uncertainty during turbulent market phases.

The European rule mainly requires mandatory clearinghouse processing of derivatives that will be standardised by the European Financial Markets Authority. If it is implemented effectively, this procedure will make it possible to significantly reduce systemic risk by limiting the impact of a bankruptcy by a market participant. Such a solution had been proposed by the FBF as far back as December 2008.

Moreover, transparency on the derivatives markets will be stepped up via mandatory registration of all transactions in a central counterparty database. These central counterparties will be accredited by the European Financial Markets Authority, and their data will be accessible to all national supervisory authorities.

However, French banks deeply regret that clearinghouses were not given mandatory bank status, as that would have reinforced the solidity and supervision of the new system.

The rule is scheduled to enter into effect at the end of 2012.


- A derivative is a contract between two parties linked to the future value or status of the underlying to which it refers (e.g. interest rate or currency trends, or the possible bankruptcy of a debtor).

- Over-the-Counter (OTC) derivative contracts are not traded on an exchange but instead privately negotiated between two counterparties.

- A central counterparty is an entity that is interposed between the two counterparties to a transaction, becoming the buyer to every seller and the seller to every buyer. A central counterparty's purpose is to manage the risk that could arise if one party to a transaction was not able to make the required payments when they are due, i.e., defaults on the transaction.

*EMIR rule: European Market Infrastructure Regulation)


Colette Cova
email : ccova@fbf.fr
Tel : 01 48 00 50 07

Céline Thomas
email : cthomas@fbf.fr
Tel : 01 48 00 50 70

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