The crisis is definitely NOT over!”
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Once again the EU is trying to control functions which largely concern the City of London - to be supervised by a Frenchman.
Christina
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TELEGRAPH 21.10.09
City's market in derivatives faces control from Europe
Paris-based 'super regulator' will have final say under draft directive
0By Ambrose Evans-Pritchard
A European super-regulator will have the final say over London's vast derivatives market and will acquire powers to limit the positions taken by banks and hedge funds, according to draft plans released by the European Commission.
The proposals will also see traders facing capital charges if they choose to settle contracts outside the main exchanges. Over-the-counter trades will have to be cleared though a "central counterparty" so that regulators can keep tabs on overall risk.
"A paradigm shift must take place away from the traditional view that derivatives are financial instruments for professional use, for which light-handed regulation was thought sufficient," said the draft. "Derivatives should be appropriately priced in relation to the systemic risk they entail, in order to avoid these risks being passed on to the taxpayers."
It added: "Derivatives play a useful role in the economy. However, they also contributed to the financial turmoil by allowing leverage to increase and by interconnecting market participants, a fact which went unnoticed because of lack of market transparency."
Insiders say European authorities were stunned to discover that French and German banks were massively exposed to US insurer AIG, creating the danger of an EU-wide crisis if AIG had been allowed to fail.
The role of regulating the $592 trillion derivatives market will go to the European Securities and Markets Authority (ESMA) in Paris, one of the three new oversight bodies to start work next year.
While the UK's Financial Services Authority and other national regulators will perform "ongoing supervision", they would be subject to "specific requests or instructions from the ESMA".
Decisions will be made by majority vote. This leaves Britain with no veto if others opt to push a policy deemed threatening to the City, even though London accounts for the lion's share of the EU's derivatives business.
The International Swaps and Derivatives Association does not keep a breakdown of the market but there is no doubt that a large share of currency and commodity contracts are traded in London. Both the Italian and French finance ministers have repeatedly called for rules to clamp down on speculation in oil contracts, so the potential for a future clash is large.
The EU draft empowers the new regulator to "counter excessive price movements or excessive concentration of speculative positions". This brings Europe closer into alignment with the US, which is pushing for strict controls on the levels of leverage.
ESMA will be able to force firms to meet tougher margin requirements, reducing leverage. Binding legislation will be drawn up over coming month
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