The British Treasury and the watchdog Financial Services Authority issued a joint report on Wednesday warning that such a move could be costly and reduce the flexibility derivatives users have to hedge specific risk.

"We urge legislators to thoroughly consider this before introducing regulations that could significantly alter the structure of the market," the report said.

"Regulatory objectives of reducing counterparty risk and improving transparency can be achieved by other means," it said.

Derivatives are complex financial instruments. Among the most controversial derivatives are credit default swaps, which are a form of insurance against a default in some types of securities.

EU Internal Markets Commissioner Charlie McCreevy had said in October that the collapse of US investment bank Lehman Brothers in 2008 had highlighted the risks of such derivatives in the absence of a central clearing party.

Lehman Brothers’ demise has been blamed for helping to trigger the worst financial market volatility in generations through credit default swaps it traded with other firms.

AFP/ Expatica