EU Approved Clearing Rules for OTC Derivatives

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To protect financial markets, EU approved legislation that would force trading of some over-the-counter derivatives through clearinghouses.

The legislation consists of set of rules that allows European Union regulators to decide on types of derivatives that should be centrally cleared.     The law also sets rules on transparency, management of clearinghouses, including capital reserves they must hold to protect themselves from insolvency, structure for penalties and similar.    In turn, traders or investors who would try to violate the rules would face penalties including fines.

Global regulators put much effort to align the European Union standards with rules in the U.S.      For example, the U.S. has lower standards for collateral, but fewer exemptions are offered than by the European laws.      The legislation is a response to the financial crisis of 2008 and collapse of several major financial institutions.     And it is a key step in building a safer regulatory framework for European financial markets.

Anna Timone (195 Posts)


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