European regulation in line but a different starting point
Although working to slightly different timetables, Europe’s new proposed regulations on derivatives are broadly in line with those of the US. Indeed, both sets of regulators are working to the same template, set out by the G20 at its Pittsburgh summit in September last year, which promised to advance tough new financial market regulations, including taking steps to make the opaque over-the-counter (OTC) derivatives market far more transparent. The European Commission said its regulations would be largely consistent with those of the US and in line with the objectives outlined by the G20. The G20 leaders set a deadline of the end of 2012 for participants to move all standardized OTC derivative contracts onto exchanges or electronic trading platforms, where appropriate, and clear trades through central counterparties.
The move towards legislation in Europe is taking a slightly different path to the US. The regulation will comprise two separate pieces of legislation. The first is the review of Mifid (the Markets in Financial Instruments Directive implemented in 2007 to impose transparency in European financial markets). Although the main purpose of the review is to seek to rectify the unintended consequences of Mifid, which were data fragmentation and the inability to put data back together, it will also bring the OTC derivatives world fully under Mifid.