Derivatives, central counterparties and trade repositories (debate) 
President
The next item is the report by Werner Langen, on behalf of the Committee on Economic and Monetary Affairs, on the proposal for a regulation of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories - C7-0265/2010 -.
Werner Langen
Mr President, ladies and gentlemen, my task is to report to you on the decision by the Committee on Economic and Monetary Affairs in respect of the regulation on derivatives. Nearly three years after the collapse of Lehman Brothers and two years since the G20 decisions, we now have a regulation on over-the-counter (OTC) derivatives and money-market products that is ready for a decision.
I would first like to thank everyone who has contributed to enabling the Committee on Economic and Monetary Affairs to come to a unanimous decision: my fellow Members, the shadow rapporteurs, the staff of the secretariat, but above all Commissioner Barnier, whose proposal laid the foundation that enables us to pass a rational, strict and effective regulation on derivatives. I would also like to thank the Hungarian Presidency, which has worked day and night to bring the very conflicting positions in the Council closer to each other. Regrettably, it has not been possible to achieve political agreement. For that reason, the dossier will be handed on to the Polish Presidency of the Council. I am optimistic that, after the summer break, we will succeed in finding a solution relatively quickly under the Polish Presidency.
In the remainder of the procedure, the question arises as to whether we should vote on the legislative text and whether to hold the final vote. The Committee on Economic and Monetary Affairs will discuss this again this evening. The two rapporteurs and the chairs of the two largest political groups have indicated to me that they would like to defer the final vote until September in order to maintain room for negotiation with the Polish delegation and not bring about a second reading at the outset.
The main points of the report, which are also controversial, concern legal provisions relating to central counterparties, better collateralisation in bilateral contracts, higher initial capital requirements, greater transparency through reporting to a trade repository and the avoidance of market manipulation in connection with derivatives. These are the most important elements. If we look at the volumes concerned, at the end of June the volume of over-the-counter derivatives traded was USD 60 billion in total, while those traded via stock exchanges amounted to USD 67.9 billion. This gives us an inkling of how the issue of OTC derivatives having had no security whatsoever apart from through bilateral agreement was actually one of the main causes of the financial market crisis.
The problems that remain concern, firstly, the scope of application. There is admittedly a clear blocking minority in the Council in respect of the Commission's proposal to restrict the regulation to over-the-counter derivatives. The proposal is also in accordance with the G20 decisions. The US finance minister, however, recently began an initiative to extend the rules to also include derivatives traded on the stock exchange. Parliament has taken a very clear position in opposition to this, and we intend to stick to this line. I believe aligning ourselves with the G20 decisions to be a sensible course of action. My request to the Commission, then, Commissioner Barnier, is that Commission officials and staff also stick very clearly to this line, even if the Council has other suggestions.
The second area is exclusions from the scope of application. In our view, these exclusions should be kept as narrow as possible. There were many requests for exclusions, including some that were absolutely justified. We have exempted only the Bank for International Settlements in Basel and allowed a transitional arrangement for pension funds in respect of bilateral clearing. Intra-group transactions between parent undertakings and their subsidiaries are to be exempted from the clearing obligation. Various associations have intervened here, wishing exemption for these too. However, let us take the German Savings Banks Association as an example - an association to which the regional banks in Germany with the greatest derivatives risk belong. LBBW is the second-largest German regional bank, and this bank alone reported a derivatives volume of EUR 2.3 billion as at 31 December 2010. This shows that we cannot treat associations in the same way as parent undertakings and their subsidiaries.
The third area is clearing thresholds for non-financial counterparties. Here we have agreed that undertakings that are only end-users are to be excluded. One outstanding matter is the recognition of third-country clearing houses. Here we demand reciprocity. I would also like to make it quite clear that where interoperability is concerned - meaning cooperation between different clearing houses - we want to restrict this to cash securities only and to require at least three years' experience first.
I am optimistic that, following the excellent preparatory work by Hungary, the outstanding matters will be resolved under the Polish Presidency. Of the 33 amendments submitted, some are mere technicalities. These concern adaptation to the Treaty of Lisbon, as the proposal was not complete in this respect. The others are essentially amendments which will be able to be resolved when the Committee on Economic and Monetary Affairs makes its decision. The 13 amendments submitted by the Confederal Group of the European United Left - Nordic Green Left, which would change the scope of application completely, should be rejected. On that note I should like to express once more my very warm gratitude for the constructive cooperation we have enjoyed from all sides of this House.
Michel Barnier
Mr President, ladies and gentlemen, the rapporteur, Mr Langen, just highlighted the obligation that we have, with this and a number of other texts, to learn everything we can from this financial crisis. It has been an extraordinarily intense crisis and, despite what some bankers may think, it is not yet over. Their crisis may be over, but the crisis, with its associated economic and social consequences, is not.
We have a duty, product by product, sector by sector, market by market, to establish intelligent regulation and effective supervision. We need to do that, but it will not be enough. We also need to ensure that the people of Europe, from whom we are demanding great efforts at the moment, feel that those efforts are fair and equitable, as well as necessary. That is why I was pleased to stand alongside President Barroso a few days ago when the Commission proposed the creation of a tax on financial transactions, and why I am currently working on new rules on certain types of pay and bonuses which can be neither justified nor explained in the present circumstances.
Let us return to the agenda of ambitious reforms that we have undertaken together. Ladies and gentlemen, together with the Council, we have introduced a new supervisory framework, enhanced supervision of rating agencies - the previous arrangements being insufficient - additional capital requirements for our trading book and, as I just mentioned, a first set of rules on pay.
Shortly - in a few weeks' time - I will present a fundamental text on the bank capitalisation rules required to implement the Basel III measures in July and the bank management and resolution measures in September and, finally, to undertake the major review of the very important Markets in Financial Instruments Directive and Market Abuse Directive in early autumn.
We have met today to talk about what is, as Mr Langen pointed out, a very important and fundamental issue, namely the regulation on derivatives. Our aim is to improve the functioning of the markets, which, as he said, carry out some EUR 600 000 billion worth of transactions. They were at the heart of the crisis; obscurity was at the heart of the crisis. The timetable for this reform is very important. I said this to the finance ministers again last week. We need to honour and implement the G20 commitments, and we need to do so in particular before the end of 2012.
We need to honour our commitments, therefore, and that is why I am pleased to hear you confirm, Mr Langen, that you have come to an agreement with several groups enabling you to take the few weeks that you need to reach a proper agreement at first reading - I believe that this is possible, and I believe that it is necessary. In particular, an agreement that still needs to be reached on three important issues for the Commission: supervision, scope of application and third countries.
Mr President, I should like briefly to discuss these three points, starting with supervision. I hope that the European Securities and Markets Authority (ESMA) and the supervisory colleges will continue to play an important role in this regard.
We are talking about markets and infrastructure that, although not national, are at least European, and even often global. Effective coordination between European regulators is therefore crucial. I believe that the Commission proposal on this point is balanced. It successfully reconciles the Member States' primary responsibility regarding approval and supervision with the allocation of important tasks to ESMA and the supervisory colleges, as you requested.
My second point concerns scope, and clearing, reporting and access obligations. I broadly support an enlarged scope for reporting. As regards mandatory clearing, I listened carefully to Mr Langen's position. A broad scope has both advantages and disadvantages, as we know. Although a broad scope enables us to close certain loopholes in the law and to ensure convergence with the US approach, we cannot ignore the sensitive nature of this issue.
For my third point, I would like to say a word about third countries. Let us be clear, ladies and gentlemen, I do not want to see the duplication of pointless rules. During my recent visit to the United States - the third in the space of a year - I identified with the finance minister, the regulators and the supervisors the risks of what we called 'underlaps', or the gaps between transatlantic legislation, and the risks of overlaps, or the duplication and overlapping of pointless rules. One of the keys to the success of this reform lies in the management of regulatory arbitrage risks and of the extra-territorial impact of third-country legislation on the Union.
However, we must stop being naive. Our aim must be to establish a level playing field based on the mutual recognition, but not the extra-territorial application, of third-country law. This is what is meant by sincere and full reciprocity.
I note, moreover, that Parliament has adopted amendments aimed at developing a mechanism for coordination with third countries. I hope that we will be able to expand on this discussion during the trialogue.
Those are the points I wished to make quickly and precisely, Mr President. I am grateful once again to your rapporteur, Mr Langen, for the very important work he has done with all of his colleagues, the shadow rapporteurs and the coordinators from the various groups, whom I also thank.
Sharon Bowles
rapporteur for the opinion of the Committee on Legal Affairs. - Mr President, this proposal has had a lot of attention, partly because there has been lack of transparency and understanding of derivatives, making derivatives a target for demonisation. However, derivatives are widely used for risk management, including by corporate entities engaged in the real economy and by pension funds. Of course it is also true that, like many financial products, they can be abused or made overly complex.
The opinion of the Committee on Legal Affairs was made early in the report's consideration, and I appreciate the fact that the rapporteur reflected much of it in his report. On matters specific to our committee, we considered it key to dispel notions of retrospective legislation on outstanding contracts, which may well be illegal. However, the retrospective extension of reporting, where this is simple due to electronic records, I consider acceptable.
We are also pleased to see the uptake of the suggestion of FRAND - fair, reasonable and non-discriminatory licensing practices. This can usefully be applied in a range of financial services to achieve openness and competition, while respecting legitimate property rights. We are also pleased to see inclusion of corporate exemptions for legitimate hedging and intra-group exemptions.
Robert Goebbels
rapporteur for the opinion of the Committee on Industry, Research and Energy. - Mr President, in one minute may I just quote from the report of the US Financial Crisis Inquiry Commission on OTC derivatives.
'The biggest financial institutions drove the market and over-the-counter derivatives after these instruments were fully deregulated in 2000. In the wake of that action, the market for these derivatives spiralled out of control and out of sight, growing to USD 673 trillion in notional amount by 2008. We concluded that over-the-counter derivatives contributed significantly to the crisis. The report explains the unlimited leverage, the lack of transparency, the lack of capital requirements, and the concentrations of risk that proved so disastrous. It also lays out how credit derivatives fuelled mortgage securitization and amplified losses from the collapse of the housing bubble. After that collapse, derivatives were in the centre of the storm. Millions of derivatives of all types between systemically important financial firms were unseen and unknown when the financial system nearly collapsed. The obligations hidden from view added to the market uncertainty and escalated the panic we saw in the fall of 2008, leading to government rescues of financial firms.'
There is a need to regulate, there is a need for transparency. We congratulate Werner Langen and we will follow.
Jean-Paul Gauzès
Mr President, Commissioner, ladies and gentlemen, to use an image much loved by the Commissioner, this is a new brick in the regulatory and supervisory system that he is courageously and effectively putting in place. A new brick, and soon there will be another one, with short selling. To ensure that those bricks are firmly in place, however, we need the Council's agreement, and that is why I believe we should make the most of the coming days in order to try to make a success of a trialogue that will enable us to reach a decision at first reading.
That is why the Group of the European People's Party (Christian Democrats) is in favour of postponing the vote on the legislative resolution until the next part-session. Doing so will give the negotiators time to reach a proper agreement. As Mr Langen, who has done a remarkable job in this difficult affair, said, this agreement specifically deals with the role of, and supervision by, the European Securities and Markets Authority (ESMA). ESMA is a key element in this financial regulatory system that has been established. The conditions must be in place, at European level, for that authority to carry out all aspects of its role, which is very important in this case.
On the issue of scope, we support the rapporteur's proposal to limit it to over-the-counter derivatives and their markets; it is also important to consider the issues of interoperability and of third countries. I would also point out that the Committee on Economic and Monetary Affairs, in an effort to be practical, believes that there is no point in imposing the provisions retrospectively, except, perhaps, in the case of transactions that are carried out over a long period of time.
This system is difficult and complicated, but it is vital if we are to prevent a repeat of the financial crises we have gone through.
Leonardo Domenici
Mr President, ladies and gentlemen, I too would like to join in thanking Mr Langen and the other Members with whom we have worked to finalise this complex report.
I think that Mr Langen made a particularly important point when he said that we wish to maintain the scope of this regulation, keeping faith with the mandate of the G20 in Pittsburgh in 2009. The basic objective was to bring the majority of over-the-counter (OTC) derivatives onto regulated platforms in order to prevent their continuing exposure to a high level of risk and speculation. When it comes down (as it did) to exchanging or guaranteeing USD 400 million without collateral, that is, without adequate reserves, the risks we are running become clear.
Having said that, however, I should also like to raise two problems. The first problem is the relationship with the Council; the second problem is the coherence of the proposal for reform of the financial markets that we must take forward.
I raise the problem regarding the Council first and I say it very clearly. The feeling is all too often that the Council represents an obstacle to reforming the financial markets swiftly and well. I hope that the new Presidency will take on this problem because this time too we have to factor in an extension that is due in large measure to positions, difficulties and disputes arising in the Council. It is a problem that also affects the procedure that we wish to follow.
The second question relates to the coherence and specificity of the provisions. There is not only the measure on OTC derivatives but also the measure on short selling and other matters. I would like to draw attention to two points: the specific issue of the commodities market, a special market that requires special anti-speculation measures, and the problem of the exposure in derivatives of local authorities in EU countries. I think that these are problems on which Parliament must intervene.
Pascal Canfin
Mr President, I wanted to begin by thanking the rapporteur, Mr Langen, for the positive atmosphere he has created in the debates we have been able to have. They have resulted in an ambitious and responsible text on which there is very broad agreement in Parliament.
I would also like to emphasise two points on which we, the Group of the Greens/European Free Alliance, presented proposals, and which were subsequently taken up by all the political groups that supported this text.
The first point concerns harmonisation by the European Securities and Markets Authority (ESMA) of the rules on collateral-related competition between clearing houses. We know that one of the great dangers of this text is that risks will be concentrated in clearing houses when they were previously spread around. They will be concentrated in clearing houses, which actually compete with each other by reducing the level of security within the system. No provision was made in the initial Commission proposal to prevent clearing houses competing on the level of security, an important criterion of which is the level of collateral.
The second point that I wished to emphasise is our proposal to expand Parliament's text; we have removed the threshold set by the Commission which limited the transmission of information - the reporting of trading information - because not all derivatives will be traded in clearing houses. We have therefore made provision for all information, be it on over-the-counter trading or on trading carried out in clearing houses, to be transmitted to the regulator so that he has an overview of the risks that exist. I hope that the Council will be receptive to this important development of Parliament's text.
Kay Swinburne
on behalf of the ECR Group. - Mr President, the cornerstone of today's package on financial products, EMIR, was the focus of global agreement, via the G20, regarding future legislation on derivative instruments. I would like to thank the rapporteur, Dr Langen, and his team for ensuring that the global dimension of this regulation has been considered. I believe that the Langen report has demonstrated that the democratic process, both here in the Parliament and other EU institutions, including the Commission, is working. Although aimed at modifying the use of derivatives through increased transparency of reporting, and, where applicable, reducing counter-party risk through central clearing, this has been an example where the most vocal and persuasive voices shaping this legislation have been those delivering growth and value in the European economy, namely businesses, large and small, from many Member States.
The report presented to plenary this week considers proportionate responses to different derivative products based on risk, considers the end-users of such products when used for hedging business purposes and takes into account the needs of millions of European savers and pensioners.
We must now ensure that technical details, in particular on segregation, third countries and different types of collateral, are suitably addressed. Where there are overlaps on to other legislative reports such as MiFID, MAD and CRD, we must ensure that the principles established in this regulation are delivered throughout and that our European businesses are not at any stage disadvantaged. Such treatment of non-financials must be ensured in subsequent legislation so as not to discourage genuine business hedging, which would have a significant impact on risk management in the real economy.
Jürgen Klute
Mr President, Mr Goebbels has just set out very clearly the role that derivatives played in the financial crisis and what scale they possess. In view of this enormous scale, many citizens are calling for such financial products to be taken off the market altogether. We called for that too. However, we realise that such a small political group as ours has no chance of achieving a majority for this. We have to accept that, and we do. Nonetheless, I would like to emphasise once again that we thought it would be sensible to go further in this regard. On the other hand - and I say this to Mr Langen clearly and with respect - in our view the resulting report is acceptable and fair.
Three important points from our perspective are the clearing obligation, the authorisation and monitoring of central counterparties and the reporting requirement for derivatives traders. These seem to us to provide an important and capable basic framework and a sound infrastructure that will enable us to arrive at a rational regulation. Moreover, this regulation is essential if we are to be able to levy a financial transaction tax - which is currently a subject of debate - on derivatives transactions. Although we have not succeeded in asserting all our demands, we believe that this report is absolutely worthy of our support.
I would like to mention one more point that I considered to be particularly important: the reference to the problem of trading in food commodities and the associated speculation. We were only able to include this reference in the recitals; Mr Langen was prepared to do this. This point will come up again as the Markets in Financial Instruments Directive (MiFID) progresses.
(The speaker agreed to take a blue-card question under Rule 149(8))
Hans-Peter Martin
(DE) Mr President, Mr Klute, you mentioned that, as a representative of your political group, you would like to see derivatives abandoned altogether. Do you have an exit scenario for this in the event that you are able to gain political support for it? How would you envisage this taking place?
Jürgen Klute
(DE) Mr President, our party has already given this matter some consideration, but I do not have enough time to go into things to any degree right now. We do have some ideas for different ways of working with the financial markets, and how the things that derivatives are used for can, to some extent, be achieved by other means. It would take too long to explain all this at this juncture. However, I should be happy to provide you with more information in this connection.
Sharon Bowles
on behalf of the ALDE Group. - Mr President, I am now speaking about the aspects relating to economic and monetary affairs rather than legal affairs. There are two prongs to this legislation: first, clearing derivatives through central counter-parties. So there will not be the situation that prevailed after Lehman went down, where it took a long time to sort out who owed who what, although it is worth pointing out that matters were, by and large, sorted out. The second aspect is reporting of all derivatives to a central registry. So, in future, there will be a much better understanding of the level and ownership of derivative contracts, and an alert will be given if it seems there is a build-up of systemic risks.
The comparison with US legislation has and will be taken seriously in order to avoid regulatory arbitrage. Equivalence, not sameness, is the key, as we are not the US and there are important differences between our legislative processes and theirs. For instance, the powers of rule-making devolved to ESMA cannot be as wide as for their US counterparts, and conduct of business aspects in the EU belong to MiFID and MAD.
I support exemption of foreign exchange from clearing, since there are already settlement procedures through CLS Bank that cover the risk. I also support the exemption of pension funds from the clearing obligations. This should continue until the collateral problem has been solved. Here we do have a difference from the US in that their CCPs accept a wider range of collateral so that their pension funds are not caught in the expensive cycle of asset conversion that would apply under EMIR.
We also hear a lot about horizontal versus vertical silos. What is important to my group is open access and the efficiency that competition provides. We need to ensure that there is not unfair profiteering, because the costs incurred in the financial system in general take their toll on the real economy and real people.
Claudio Morganti
Mr President, ladies and gentlemen, over-the-counter derivatives have been portrayed as representing a sort of uncontrolled jungle without rules, in which speculators and fraudsters have operated undisturbed.
This report seems to bring a bit of clarity to the sector, starting with the storage of trading data, lifting the veil of darkness that until now has been present in the market. The requirement for central counterparty clearing is undoubtedly useful to prevent risks and promote the overall stability of the financial system. However, it is a good thing to exempt non-financial companies from this requirement - truly productive ones, I mean - as they can have recourse to derivatives to hedge specific risks, for example those linked to changes in exchange rates. The European Securities and Markets Authority (ESMA) should also play a decisive role. We hope that it proves equal to the task and does not turn out instead to be just a bureaucratic European superstructure.
This report fits into a context of a broad international review of the sector, following common guidelines. The financial markets are one of the most interconnected things that exist at a global level and it is therefore necessary to act in as concordant a climate as possible. For the same reason I think that, for example, the introduction of a tax on financial transactions at an EU level only would be difficult. I am of the view that good regulation, the most extensive regulation possible, of the entire financial sector will work better and certainly be more useful than possible new taxes.
Hans-Peter Martin
(DE) Madam President, most of us will remember the historic meeting between Mikhail Gorbachev and Ronald Reagan 25 years ago in Iceland, the subject of which was exactly what we need to debate today: disarmament. Looking at what they are capable of, I am astonished that derivatives in their present form - even if constrained somewhat by the current measures - are still defended so vehemently. After all, they have proved themselves capable of triggering an explosion of wealth, but also - it has to be said - of causing extreme destruction. The figures have already been given. My compliments to Mr Langen for having managed to fend off so much attempted influence, including that based on the interests of nation states.
Before we get bogged down in the detail, it needs to be said that the main problem has not been solved. The genie is still out of the bottle. As a global community, if you will - insofar as it exists - we are attempting to gradually reduce the risks on the world's financial markets. In this respect the present report is undoubtedly a step in the right direction, but as you mentioned, Mr Langen, the regional banks - squeezed as they are between the savings banks and the financial giants - still represent a huge risk. Great difficulties exist in the private sphere. Neither do I agree with pension funds being let off in the way currently proposed. We can only hope that much more will be done when it comes to the Markets in Financial Instruments Directive (MiFID) than has been mooted to date.
Corien Wortmann-Kool
(NL) Madam President, the trade in complex financial products of which no one could any longer understand the contents or estimate the risks played an important role in the run-up to the financial and economic crisis. It is therefore a positive development that Commissioner Barnier has brought forward these legislative proposals, as we need to obtain transparency in relation to derivatives trading and securities need to be better hedged. Our rapporteur, Mr Langen, has thus produced excellent work in further elaborating these proposals into an ambitious package that also further develops the foundations that we have laid for the European regulator.
Derivatives must be traded publicly, as that gives regulators more insight into the trade flows between buyers and sellers and improves their ability to assess risks. I am pleased that account was also taken, in the proposals that we will be voting on tomorrow, of the special character of pension funds, which are already subject to very strict risk management legislation. The issue of risks is dealt with differently there. As things stand, in pension funds there must not be any speculation and the risk must be hedged. They also have to comply with the requirements governing transparency and openness, although not with the clearing obligation - and fortunately that exception has been soundly elaborated in this proposal. The proposal provides for a temporary and partial exception that provides the leeway to find a solution based on a few years of practical experience, whereupon it will then be up to the Commission to determine whether we have found such a solution or whether the period in question will have to be extended.
I hope that in this regard, as well as in other regards, the Council - which has still not been able to reach any agreement - will follow Parliament's lead so that we will quickly be able to reach a final conclusion to this legislation.
Evžen Tošenovský
(CS) Madam President, today we are debating the further measures initiated as a result of the experience of the global economic crisis. It is probably wise to attempt to monitor the over-the-counter (OTC) derivatives market, and, where appropriate, to adopt the necessary regulations in respect of excessive behaviour. As with other rules adopted at European level, however, we need to ensure, in attempting to impose the greatest possible level of administration, that there is no detrimental effect on well-functioning mechanisms that are in fact very helpful for fast-moving commercial relations which do not involve any basic risk.
Financial instruments, especially those used in the energy sector, are mostly not linked to speculation, but to real business interests and covering against risk. The new rules on OTC derivatives in the energy sector are intended to help increase stability and transparency on financial markets, while at the same time avoiding cost increases and higher prices for end users. This also means that the obligations imposed by the new rules should apply only to future contracts. I am very much in favour of ensuring that all of these procedures are simplified.
Ildikó Gáll-Pelcz
(HU) Madam President, I would like to thank Mr Langen for the immense work he has done while preparing this report. I agree that the strict and unified regulation of over-the-counter (OTC) derivatives is a pressing issue, especially after the successful creation of European financial monitoring systems. Indeed, I would go a step further and venture to say that the execution of these transactions must be regulated in a way transparent to all institutions, national authorities or financial actors carrying out monitoring based on unified provisions.
According to the Commission proposal, it will be mandatory to report trading with OTC derivatives, and the clearing of transactions will be completed with the involvement of central counterparties. The provisions on additional capital requirements are unavoidable, because we cannot allow the potential practice that sees banks pocket the profit by putting money into high-risk investments, and possibly create their capital from depositors' money.
We can agree with the proposal of the Commission, which touches on the US regulations in many areas. However, it would be worth considering whose responsibility it should be to report to trade repositories. Should it be the responsibility of counterparties, or would it be more efficient if reporting was done by the central counterparty? The question is, where would these trade repositories be and how would they be structured? We could consider a solution which would create a system similar to that of the lobby registry, summarising the data reported to trade repositories in a harmonised system under unified standards. It would be great if we could realise this in Europe. The same principle could be applied to the re-registration of central counterparties, as well. I think it would be appropriate and important to come to an agreement at first reading on this important issue.
Vicky Ford
Madam President, in the financial crash we saw how a shock in one corner of the global financial market, coupled with uncertainty, sent systemic waves across the world. The aim of this regulation is to reduce systemic risk caused by a financial institution's failure by encouraging central clearing and improving transparency.
It is not intended to lock non-financial companies out of derivative markets, which they use to reduce exposures to fluctuations in foreign exchange, interest rates or raw material prices. Having excluded these companies from this regulation, we must not price them out of these markets when we look at the Capital Requirements Directive later. I would also be concerned if the compromise in this text on what are acceptable liquid assets were to be cut and pasted into the rules on bank liquidity.
Like many colleagues, I hear the concerns of our constituents. They see highly volatile markets for food and fuel, yet prices in the shops and the fuel stations seem only to move in one direction. But derivatives allow producers and suppliers to reduce the volatility and it would be wrong to blame such fluctuations solely on derivatives traders. We need to look at economic factors as well as market abuses across physical and financial markets when we look at MiFID and MAD later this year.
The ambition of this regulation is to reduce systemic risk and it would be a mistake if the end legislation contributes to increasing monopoly powers in our markets.
Alfredo Pallone
(IT) Madam President, ladies and gentlemen, I too wish to congratulate Mr Langen and all the shadow rapporteurs insofar as they have brought here a text that they all agree on. I completely agree that serious and careful regulation on derivatives should be put in place to prevent highly speculative and unorthodox behaviour.
However, derivatives should not be demonised, because when used correctly they are important and useful financial instruments. When approaching regulatory reform, therefore, it is appropriate to do so in a critical manner but to avoid viewing them negatively. We agree that there is every need to introduce control and supervision. National and European supervisory bodies need to be able to assess and monitor the extent and the volume of trading but, at the same time, we must take care not to be overly restrictive by introducing thresholds, conditions and bureaucratic burdens which, from a practical point of view, would frustrate use of such instruments.
It was not financial instruments themselves that led to the crisis but rather the lack of supervision and the ill-considered use of such instruments outside the rules, and it is in these areas that action is required. Hence the need for more stringent rules for central counterparties, whether in terms of capital requirements or with regard to the carrying out of their activities, and greater powers for the European Securities and Markets Authority (ESMA) and the Commission over technical standards and clearing rules, to avoid differences from one Member State to another.
I applaud the general introduction of information for the purposes of monitoring the situation and obtaining a complete picture of the derivatives market so as to enable preventative action to be taken. Finally, I think that it is important to exempt non-financial entities from certain requirements when they have recourse to the derivatives market in order to hedge the risks associated with their own activities.
Thomas Mann
(DE) Madam President, our unanimous vote in the Committee on Economic and Monetary Affairs sent out a clear message that in future, derivatives will be regulated at Community level. Mr Langen's excellent report makes it clear that we will insist that transactions involving derivatives - which until now have often been traded over the counter - are made fully transparent. Excessive trading in derivatives is a potential threat to the financial markets. I welcome the fact that only a few exceptions from the scope of application are being proposed. This will make the directive more effective.
Clearing of over-the-counter (OTC) derivatives - in other words, their risk assessment and settlement - is to be recorded centrally in future. This will improve transparency in the various markets. It is in the interests of investors that the new European Securities and Markets Authority (ESMA) should take on a pivotal role. Moreover, the trade repository and the standardisation of the processes should both enable new risks to be identified at an early stage. The Commission is already on board. It is now time for the Council to step up to the mark, so that the Member States finally start singing from the same hymn sheet. That way, we will be able to get the job done properly this autumn. Risk control and market transparency are the cornerstones of a functioning financial services market and provide an excellent basis for the long-term confidence that is needed.
Monika Flašíková Beňová
(SK) Madam President, considering that the entirely unregulated trading of derivatives was quite obviously one of the factors behind the credit crunch, I believe that this proposed regulation is vital if we are to avoid such crises in the future. The fact that derivatives lack transparency means that the nature and extent of risk cannot be identified, posing a threat to financial stability and society as a whole. In this regard, the establishment of the European Securities and Markets Authority (ESMA) and its role in assessing which derivatives will be subject to clearing are important issues. It is necessary to continue supporting the operations of this institution because they reduce systemic risk to the financial system, including the potential insolvency of closely interlinked parties. All the same, Commissioner, I would urge the Commission to pay special attention in this context to trading carried out by financial institutions on the commodity markets. The involvement of financiers now looks unhealthy, according to all the evidence, and the Commission would do well to consider whether participation in commodity exchanges should be limited to physical traders.
Franz Obermayr
(DE) Madam President, the reality is that more than 80% of derivatives transactions are over-the-counter (OTC) transactions. It will therefore be very difficult to impose controls on the bulk of such derivatives. Neither are these standardised products, and as a result there are complex interdependencies. The impact of this became extremely clear during the financial crisis. OTC derivatives added to the uncertainty in the markets. Details of such transactions were only available to the contracting parties, so the risks could not be assessed. Transparency is therefore important. Contracts should be reported to the trade repository within one day. It would be negligent of us to allow the stability of the financial markets to be jeopardised by opaque products, because trading in derivatives is not a game; rather, it involves bundling risks together in a way that can sometimes have very serious consequences for the real economy. I am thinking here of commodities derivatives in particular.
Michel Barnier
Madam President, I should like to thank all of the MEPs, to whom I naturally listened very carefully, for their contribution. All the questions that were asked and the points that were emphasised enhance the work done by the rapporteur, Mr Langen, on all these points and the intelligent responses that have been given.
I should like to mention briefly a number of important issues in response to your questions.
Firstly, I should like to thank the Chair, Mrs Bowles, for the very important work that has been done by the Committee on Legal Affairs and for the valuable contribution it has made to several points in the text. Mrs Bowles also helpfully pointed out that derivatives serve a purpose. Banning them outright is no good, and it would also be completely unrealistic; they can serve the real economy. Moreover, that is why - and I say this to Mrs Ford - we have introduced a number of exemptions for when companies use these products to cover themselves against certain risks and to protect their business. However, when companies use these products in the same way as banks, there will be no exemptions.
This is not about banning derivatives, but about ascertaining how they are put together, presented, used, exchanged and covered, which has clearly not been the case in all the years gone by.
Mr Gauzès, Mr Goebbels, Mr Domenici, Mrs Wortmann-Kool and Mr Mann, just now, mentioned the lack of transparency that the rapporteur and I have highlighted and which explains the need for this text. It is clear that the lack of transparency is at the heart of the crisis and that derivatives were actually one of the causes of the crisis because they were not transparent, controlled, cleared or standardised.
I am grateful to Mr Canfin for having pointed out - and I admit he is right - that a number of points in the Commission text were improved thanks to Parliament. I shall come back to another point raised by Mr Canfin.
I recall that Mrs Bowles and Mrs Gáll-Pelcz raised the issue of trade repositories, which will indeed play a central role. They will register all transactions, ladies and gentlemen. Trade repositories are crucial to ensuring that the regulator can work effectively. To this end, we discuss - I was going to say every day - the technical side of things with the United States and the US regulators, in order to guarantee access to information derived from our coordinating mechanisms - Mrs Swinburne raised this point - and full, complete and sincere reciprocity between the US and Europe. We are not there yet, but we are also currently engaged in a voting process connected with the Dodd-Frank Act and the texts that the US regulators may introduce, sometimes even without a legislative measure, and that we here in the Council and Parliament may bring in as well.
Indeed, I would welcome an agreement to prevent any positions that breach competition rules and hence generate additional costs for the economy.
Lastly, I would say to Mrs Bowles that of course there will be no exemptions without a prior assessment by the European Securities and Markets Authority (ESMA).
Mr Canfin, you are right about the need to prevent any prudential competition with regard to the security conditions in which clearing houses must operate. I would also like to say that, on this point, I think it is a good idea for the European Systemic Risk Board to be able to play a part in this supervision. This point will definitely need to be looked at again in trialogue. Mr Gauzès mentioned my concern to build this structure with you and with the Council, brick by brick, product by product. We have here an important - major - brick, when we see the volumes of trade involved.
He also mentioned ESMA. This is a key point; we must use every text we have, ladies and gentlemen, to make this mechanism - one that you sought to introduce by means of a regulation and to equip with powers which we must not backtrack on or erode - as strong and as effective as possible. I am well aware of the attempts to withdraw and defend one's territory in relation to each of these texts. Like you, I am anxious for ESMA to be able to exercise all the powers and exert all the influence that it has been given, thanks to you in particular.
Mr Domenici mentioned over-the-counter derivatives. Naturally, this is where there is the most risk and the greatest lack of transparency, hence the G20 decision and the Commission proposal. We are of course very mindful of our relationship with the Council, Mr Domenici, and I should like at this point to thank the Hungarian Presidency for all the efforts it has made to advance this text.
I should like to say a word about a subject that I became interested in a very long time ago, long before I started in this job in fact: commodities. Mr Canfin, Mr Klute, Mr Tošenovský and Mrs Flašíková Beňová, a moment ago, raised the issue of commodities. I wish to say that the text on derivatives is important for this reason too, ladies and gentlemen, because all the derivatives used on the commodity markets, whatever the nature of the commodity, are going to be covered by this requirement for transparency, standardisation and accountability.
We must not stop there with regard to the issue of commodities and the management of the risks of speculation - I was going to say hyper-speculation - which accelerate price volatility, often at the expense of the most vulnerable populations, particularly in certain African countries. We are going to put forward proposals on position limits and accountability, but the text that you are going to adopt - in a few weeks I hope - and the amendments on which you are going to give your verdict are one way of ensuring transparency and accountability on the commodity markets.
To conclude, Madam President, I should like to say a word about pension funds, as mentioned by Mrs Swinburne and Mrs Wortmann-Kool. We must not create loopholes in the law. We have identified a specific problem presented by these institutions, which are essential for many Europeans, and we will be proposing - as you know - limited transitional measures to deal with this issue.
President
The debate is closed.
The vote will take place at 12:00 tomorrow, Tuesday, 5 July.
