EU big guns back Britain into derivatives corner: diplomat

4th October 2011, Comments 0 comments

EU big guns led by Germany, France and current bloc chair Poland, backed Britain into a corner Tuesday over new European regulation of trade in over-the-counter (OTC) derivatives.

Talks between the 27 European Union finance ministers in Luxembourg have "broken up and gone into a smaller format in an effort to find a compromise that London can accept," a spokesman for the Polish EU presidency told AFP.

The discussion on derivatives was delayed by rising concerns over debt-stricken Greece and banking woes, which took up most of the ministers' day.

G20 nations ordered new rules be drawn up to bring transparency to derivatives trading which can be very opaque while involving billions of dollars.

These would cover interest rate, equity, credit, foreign exchange derivatives and others types of instrument, many of which are hugely complex.

"Ambassadors agreed last week that the regulation as backed by 26 of the 27 EU states was ready to go to the European Parliament for negotiation to begin, but Britain, which has 75 percent of the trade in this area, was unhappy," the Polish official said.

"We came up with this as a way of giving everyone a chance to find a position everyone could accept.

"Normally once the ambassadors agree, the text of the legal changes should go to the parliament within seven days," he stressed.

Last Wednesday, EU governments decided to over-rule Britain which is anxious to maintain its position as one of the world's leading financial markets -- almost half of all global trade in derivatives is done in London.

"We are prepared to be isolated on this in public," said a British diplomat, expressing anger at regulation that would "exclude certain institutions," notably the European Central Bank, from the new restrictions.

In a joint letter signed by the heads of seven leading market trade associations, including the British Bankers Association, the City of London relayed its deep concern to the EU's markets commissioner, former French foreign minister Michel Barnier.

"We are concerned that the forthcoming European Markets and Infrastructure Regulation (EMIR) does not take proper account of the likely concentration of clearing provision," they said.

"It may thus inadvertently, through legislation, embed lack of choice in European financial markets."

The signatories to the letter said investors, brokers and market middle-men in the City "all concur that this is an issue of significant concern."

They demanded changes to the new EMIR standards to "ensure that a clearing house must accept instruments for clearing regardless of the venue on which they are traded."

© 2011 AFP

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