City no longer threatened by EU plan to snatch derivatives

Tim Wallace
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EU RULES on the central clearing of derivatives will no longer seek to cut Britain out of the industry, Treasury officials confirmed yesterday.

Finance ministers met to discuss draft legislation which seeks to push derivatives trading through central counterparties (CCPs) on the basis that it reduces the risk of one market participant’s collapse sparking the downfall of others, and thus hitting the whole financial system.

For many categories of derivatives, these CCPs are set to replace the current over the counter (OTC) trading.

Earlier it had been proposed that clearing houses processing euro-denominated derivatives would have to be located within the Eurozone.

This measure has been fought by Britain as it would hit the City, and is now understood to be off the table.

Ministers also discussed the voting process when a country disputes the establishment of a CCP in another member state. The authorisation of a CCP can be challenged and rejected, by a unanimous vote, excluding the “home” nation which in which the CCP is being established.

Alternatively a two-thirds vote will mean a case is decided at the European Securities and Markets Authority.

The agreement “ensures the single market is properly protected”, a Treasury spokesman told City A.M.