EU proposes tighter rules for derivatives trading

The European Commission (EC) has proposed that all information on over-the-counter (OTC) derivatives trade be reported to trade repositories and made accessible to regulators.

The draft proposals tabled today by the European Union's executive council aims at curbing short-selling and tightening controls on derivatives, in order to bring more safety and transparency to the OTC derivatives market. 

As part of its ongoing work of creating a sounder financial system, the EC has suggested that more information should also be made available to all market participants.

Under the proposals, all standard OTC derivative contracts should be cleared through central counterparties (CCPs), in order to reduce counterparty credit risk - the risk that one party to the contract defaults.

In addition, trade repositories will have to publish aggregate positions by class of derivatives to give all market participants a clearer view of the OTC derivatives market.

The EC's proposal, which is in line with the EU's G20 commitments and the approach adopted by the United States, now needs to be cleared by the European Parliament and the EU member states.