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Proposals being worked on in the US and Europe to require foreign exchange derivative trades to be processed by a clearing house have prompted fear and alarm among banks and companies. "Our people have been gripped by this issue," says an official at one London bank.
Derivatives dealers should not be allowed to own stakes in central counterparties (CCPs) or their risk management systems - and CCPs should not be allowed to compete with each other, according to advice from the European Parliament's Committee on Economic and Monetary Affairs.
The majority of financial institutions and corporations around the world agree that moving OTC derivatives trading to a system of centralised clearing would help manage risk but many market participants still harbour serious concerns about the prospect, according to a survey from Greenwich Associates.
In the months that followed the near-implosion of financial markets, regulators scrambled to figure out how to rein in the vast over-the-counter (OTC) derivatives markets that were seen as central to the crisis.
European derivatives exchanges, clearing houses and dealers have set up a lobby group to represent their interests at a time when European policy-makers are drawing up rules set to change the face of trading in this market.
"We must not let daylight in upon the magic," Walter Bagehot warned about the British monarchy. For the world of derivatives, however, more daylight is essential.
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