The European Commission (EC) recently proposed reforms for the European Union’s derivatives markets that it estimates could save participants up to $2.84 billion in operational costs and $7.54 billion in one-off costs.
The EC’s reforms are intended to make regulations more proportionate for corporates and include measures to ease cost and reporting burdens for those employing over-the-counter derivatives, according to an announcement. The reforms would include additional market players through a refocusing of the current clearing obligation scope for financial counterparties and would exempt the smallest financial counterparties. Additionally, the EC proposal reform would provide a longer time period for the development of pension funds clearing solutions.
The reforms would also target reporting in the market. They would both streamline the application of reporting requirements and implement measures to improve the quality of the data that is reported. The EC thinks that these reforms will make operations easier for those on the derivatives market, while maintaining the same levels of financial stability.
The derivative market is typically made up of privately negotiated contracts rather than exchange trades. It pins contracts to the future value of status of an underlying factor, like interest rates or a currency value, which can be used either speculatively or to protect against legitimate risk.