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Europe plans tougher rules on derivatives

THE EUROPEAN Union is ratcheting up its crackdown on the City, announcing tough new rules governing derivatives traders on the eve of a crucial vote on anti-hedge fund and private equity legislation.

EU Financial services commissioner Michel Barnier yesterday said he would draft legislation forcing all derivatives products and trading to be registered with trade depositories that regulators could access.

“These people don’t like coming out in the light so we are going to flood them with light,” he said, adding that the legislation would cover all over-the-counter derivatives that don’t trade on exchanges.

He also said he would introduce capital and liquidity rules for derivatives traders, but would not be drawn on the limits he would set.

Barnier is also planning a separate law – which will be drafted in October – that will regulate credit default swaps (CDS), which allow traders to insure against a borrower defaulting. European leaders claim that speculators used the instruments to bet that Greece would default on its debts, exacerbating its precarious fiscal position.

The news comes as European finance ministers prepare to vote on draconian legislation that targets the hedge fund and private equity industries.

Chancellor George Osborne has flown to Brussels to make the case against the Alternative Investment Fund Manager (AIFM) directive, although he is resigned to losing the battle as most other EU countries back the plans.

However, there appeared to be a small victory in the offing for opponents of the directive, after a committee of MEPs working on the legislation indicated it would let non-EU hedge funds access European investors with a “passport”, as long as they agree to abide by tougher transparency standards.