Derivatives Markets: Future policy actions (short presentation) 
President
The next item is the report by Werner Langen, on behalf of the Committee on Economic and Monetary Affairs, on derivatives markets: future policy actions -.
Werner Langen
Madam President, first of all, I would like to thank my fellow Members who helped me to draw up a very wide-ranging report following the Commission communication for their willingness to compromise and for the fact that we did not simply agree on a minimum-level solution, but on workable compromises.
However, I would also like to thank Commissioner Barnier for the fact that he now wants to do something practical in this regard. Mr McCreevy - your predecessor, Mr Barnier - needed to be goaded into action. In your case, we are certain that you will submit proposals for the regulation of the financial markets quickly, reliably and correctly and be able to implement them together with us. All I can say to you is that you are doing the right thing by not waiting for the last one in the convoy or the disruptive influences in the Council. You have Parliament fully on your side with a clear and fair regulation of the derivatives markets.
We adopted the report in committee with a broad majority - 43 in favour, 1 against, 1 abstention - and some of the professional observers from other Member States were surprised that, following the controversial debate, a regulation was produced that received such a high level of support. Everyone tried to find suitable compromises, even with regard to the two points that up to now had been contentious: governance, the conditions for the clearing houses and, secondly, the wording concerning the third states regulation, on which we have had intensive and contentious debates. You have today set in motion a public consultation procedure with regard to two sub-areas - the documents have been available since this afternoon - these areas being, firstly, short selling and, secondly, derivatives and market infrastructures. I believe that we need more stringent rules in this regulation and, now that the first part of the financial market crisis has to some degree been overcome and the second part is before us, that we should not allow an enormous market encompassing twelve times the gross world product to remain unregulated. This includes the OTC derivatives, but it also includes other points, and we all know that this is only part of the financial market regulation, not all of it.
A financial market crisis and derivatives that are not traded on the stock exchange have doubtless made the crisis worse. The accounting rules from the United States and the netting in internal banking operations have obstructed transparency, and the credit default insurance on government bonds, in particular, has fallen into disrepute.
In the case of Greece, too, there is no proof that credit default swaps have caused the crisis. On the contrary, it is quite clear that it is not speculators, but the debt problems of the Member States that are the primary cause. Thus, we will only be able to solve the problem if we solve the debt problems.
We have identified another problem from the experiences of the past few years, and that is that the market power of the six largest institutes is a problem. These six largest institutes - of which three are from Europe and three from the United States - are responsible for 80% of the derivatives market. We remember the experience of 1992 when there was speculation against the British pound and when, under the name of Soros, the accession of the British pound to the euro was prevented, and also the past experience of individual campaigners, who noticed at that time that some central banks had to use up all of their resources.
The market needs rules. It must be strictly regulated and the decisions of the Committee on Economic and Monetary Affairs comprise a total of 48 individual points: standardisation of derivatives, trade repositories, the establishment of central counterparty clearing houses, use of organised trading venues, enhancement of market integrity and market oversight, derivatives for companies and end users must be regulated separately and we need the aforementioned ownership rules.
Finally, I would like to assure you, Commissioner, of the unconditional support of Parliament with a broad majority. Do not sit at the back and follow everyone else, but be at the forefront and you will have us at your side.
Kay Swinburne
Madam President, I welcome Mr Langen's report as part of the difficult path towards effective regulation of derivative products. It has been clearly shown that the lack of transparency in this field can cause the build-up of unknown risk in our financial system. However, Mr Langen's report also recognises that derivative products also serve the opposite purpose of dispersing risks for businesses, small and large, which are going to be the foundation of economic recovery in Europe.
I am glad that Parliament has clearly voiced its opinion that many end users should be exempt not just from clearing, but from collateralisation and capital requirements as well. Although I do not agree with everything in Mr Langen's final report, particularly with regard to the banning of certain types of products, as I believe this needs considerably more research to avoid the financial innovators finding simple way of rebranding or engineering even more complex products to get around overly prescriptive rules, I am, however, confident that the process of European and global law-making continues and that we will come up with a workable and effective solution for derivative instruments.
Elena Băsescu
(RO) I would first of all like to congratulate Mr Langen for all his efforts on this report. Derivatives are considered to be one of the basic causes which helped trigger the financial crisis. With the aim of preventing new crises, the proposals drafted by the Commission on the derivatives market will reduce the risk these instruments pose to the European economy.
In order to restore confidence in the financial markets, a legislative framework is required which will help increase transparency and help the market players make an accurate assessment of the risks involved. In the short term, reducing counterparty risk is an important objective. This can be achieved by using central counterparty clearing houses more frequently. Transactions need to be centralised through a central counterparty in order to increase transparency. In this respect, central counterparties help preserve the integrity of the stock market.
Michel Barnier
Madam President, honourable Members, first let me express my thanks to Mr Langen for this report, and to the Committee on Economic and Monetary Affairs. This is a timely report that is of a high quality and that is economically and politically important. Mr Langen has asked all the right questions - which, knowing him as I do, does not surprise me - and has adopted and proposed an ambitious point of view. I believe that this is indeed the right approach to this issue, given its financial and economic importance.
Honourable Members, you are all aware that, when discussing the derivatives market, we are talking about a market worth USD 600 trillion, and about products that are used daily by banks, but also by businesses, to cover potential fluctuations in exchange rates and interest rates, or volatility of oil prices.
As Mrs Swinburne said, these products are useful to our economies but, at the same time, they can be a source of risk and currently fall outside any form of transparency or registration. That is what we need to change and what you, Mr Langen, propose in your report. It is also the approach that the Commission announced in its communication on the derivatives markets in October 2009, and which I personally confirmed to Parliament on 13 January 2010, as you may remember. This proves, Mr Langen, that I intend, as I said on 13 January, to be in the driving seat and not in the passenger seat.
Precisely with that aim in mind, I would like to confirm my intention to submit a legislative proposal on over-the-counter (OTC) derivatives this summer - at the beginning of September to be precise. The objectives are clear: we want to increase transparency, establish a general standardisation process, and strengthen the markets.
However, we must also do all of this swiftly, effectively, and without improvising. Parliament's assessment is on the table; my services have been working for several months and have maintained a constant dialogue with all the parties involved. In fact today we launched a public consultation to finalise our proposals on some specific aspects. I would like to mention, for example, the criteria that must be adopted in order to make derivatives clearing mandatory; not all derivatives can be standardised.
Secondly, the type and level of prudential risk management requirements, which we have to have with regard to clearing houses; Mrs Băsescu rightly raised this issue. These clearing houses should enable us to reduce systemic risks, and we must be very careful to ensure that they can succeed by establishing all the conditions they require to perform that role.
Thirdly, the conditions under which clearing houses in third countries can offer these services in Europe. Another issue is the potential interoperability between clearing houses and the issue of trade repositories; these are key infrastructures, since they will compile all information on transactions. How should we regulate them? Should we demand that they be established in the European Union? These are all questions to which we will pay close attention, and we should be mindful of the answers that we will be given. We will also take into account the results of this consultation in our impact assessment and in the legislative proposal.
I should like to highlight a few more specific points from the Langen report. Firstly, I have taken note of Parliament's concerns over the ownership of clearing houses and the risk of excessive control of these clearing houses on the part of their users. I, like you, Mr Langen, want to be aware of any potential conflicts of interest but, at the same time, we must consider the fundamental European Union rules in the area of freedom of investment, and these rules do not sit well with the regulation of clearing house ownership. However, we will continue to work on this issue.
This is a sensitive matter and one that I do not wish to avoid; I raised this question in consultation and, in any event, we need strict governance mechanisms in order to minimise any potential conflicts of interest.
I have also noted your preference for clearing houses and central repositories to be located in Europe. Personally, Mr Langen, I am in favour of such an approach. That is why we presented three different options with regard to trade repositories in our consultation.
However, if these facilities are to be located partly in Europe and partly elsewhere, the challenge is to ensure that all these entities are indeed subject to the same rules and that our competent authorities have direct, immediate and unconditional access to the information they need.
The report also expresses a preference for giving the European Securities and Markets Authority (ESMA) a powerful role in authorising the supervision of clearing houses and in registering and monitoring trade repositories. This is also a very important issue on which we must continue to work. Mr Langen, responsibility in the areas of supervision and authorisation is linked to tax liability.
Granting supervisory responsibility to ESMA would mean that, in theory, ESMA would also assume budgetary responsibility, which is difficult to envisage at this stage, but we have not yet taken a final decision on this point.
I also share your concerns about the volatility of the commodity derivatives markets; I am currently working on that very issue of volatility and, as I told Parliament, on controlling all risks of speculation and hyper-speculation, controlling what I consider to be scandalous transactions in the area of agricultural commodities. Here too we must strive for general transparency in these markets and establish tools to combat their excessive volatility.
Finally, the Commission wants to find a solution to the problems observed recently in the derivatives markets, particularly in respect of sovereign debt. Ladies and gentlemen, today I also began a consultation on short selling, which also covers sovereign credit default swaps (CDS). We will also present a legislative proposal in September.
For these reasons, I sincerely believe and am happy to tell you personally that the Langen report demonstrates the necessary level of commitment to these extremely serious issues in order to help define and implement a strategy for the OTC derivatives market, so that it may become more secure, more transparent and more efficient. Moreover, in many respects, this report represents for our governments and for the Commission a very useful and very important incentive, and for that I thank you.
President
The debate is closed.
The vote will take place tomorrow (Tuesday 15 June 2010).
