... to the European Commision on possible changes to create greater resilience in the OTC markets.

The EACT has commented to the European Commission on possible changes to create greater resilience in the OTC markets.  

The full document can be viewed [here].

So the issues that we are concerned about can be summarised as: 

• Companies use derivatives to reduce risk and not to trade speculatively.  There is a risk that a consequence of the current proposals would be to inhibit the non-financial sector in its pursuit of financial risk reduction.
• Some of the proposals would also lead to higher costs, increased borrowing and additional capital requirements. They will require companies to hold large undrawn credit lines or cash investments and higher capital accordingly.
• If a consequence as noted above is reduced hedging by some companies then there will be increased risk in European business without any economic or social benefit.
• The systemic risk with which the EC’s proposals are concerned arises within the financial sector and not elsewhere in the economy. The failure of a company or indeed a group of companies does not create a threat to financial stability in the way that a bank failure does.  It follows therefore that the non-financial sector should so far as possible not be exposed to the adverse consequences summarised above from an initiative that is appropriate for the financial sector only.