European executive wary of making changes to derivatives trading rules

Forcing privately negotiated derivatives onto exchanges could contradict other EU laws that promote competition in trading and damage risk hedging, an official with the bloc's executive body said yesterday.<br /><br />Turmoil from the demise of Lehman Brothers bank a year ago and the near-collapse of insurer AIG prompted global leaders to call for tougher rules to regulate the vast $600 trillion over-the-counter (OTC) derivatives market.<br /><br />The US and European Union are debating new rules for the sector, focusing on better transparency and requiring as many of the privately traded contracts to be standardised so they can be centrally cleared to cut risk.<br /><br />The US wants to go a step further and shift as much OTC contract trading as possible onto exchanges. US lawmakers say if the EU does not follow suit, European market participants could have an unfair advantage. &ldquo;In terms of the European situation, before mandating trading on regulated markets we have to take into consideration the current law,&rdquo; Maria Velentza, head of securities markets at the Commission&rsquo;s internal market unit.<br /><br />The EU introduced the markets in financial instruments directive, or MiFID, two years ago to abolish stock exchange monopolies in trading shares and spur competition. It led to alternative trading venues that have lowered trading fees. Leaders of the G20 conclude their two-day meeting in Pittsburgh today and have pledged to beef up financial market regulation.