By Jeremy Grant in London
The biggest users of derivatives, including banks and asset managers, have warned the European Commission that imminent reform of derivatives markets risks ?embedding lack of choice? and called for the business of clearing to be opened up to competition.
The call, in a letter to Michel Barnier, EU commissioner for the internal market, marks a ratcheting up of efforts to challenge the status quo in the clearing of derivatives, in particular exchange ownership of clearing houses in an integrated ?vertical silo?.
?We consider that choice and efficiency in clearing services in the EU may diminish dramatically if the current trend towards concentration in the provision of clearing (and trading) services continues,? said the letter, signed by the British Bankers? Association, the International Swaps and Derivatives Association and the Association for Financial Markets in Europe, all of which represent banks.
It was also signed by the Investment Management Association, which represents UK pension fund and asset managers, the European Fund and Asset Management Association, the Association of Corporate Treasurers and its European sister association.
Exchanges that operate silos?which include Deutsche B?rse, CME Group and IntercontinentalExchange in the US?have come under fire from rivals that do not?such as the London Stock Exchange and Nasdaq OMX?claiming such structures impede the ability of others to compete.
Deutsche B?rse and CME argue that ownership of clearing allows savings for traders and that rivals are free to compete if they have viable products.
Clearing has been a source of friction between exchanges that own their own clearers and the banks that are big customers.
But it is coming to a head as a wave of EU financial regulations are set to create new market structures for over-the-counter derivatives, with clearing a key requirement of G20 reforms.
Clearing is a key feature of the European Market Infrastructure Regulation (Emir) which requires that many OTC derivatives be cleared to help safeguard against a big default.
It is also central to a probe by Brussels antitrust authorities into the proposed combination of NYSE Euronext and Deutsche B?rse. That would combine the group?s respective futures platforms, Liffe and Eurex, and strengthen the B?rse?s clearing house, Eurex Clearing.
The LSE, Nasdaq and many banks argue that access to clearing should be made easier and that silos should accept contracts from any trading venue. They also say this should apply to existing exchange-traded derivatives, not merely to OTC derivatives that are set to be cleared as part of the Emir reforms and the Dodd-Frank act in the US.
? The Financial Times Limited 2011