The EACT comments in response to 'Consultation Document: Possible initiatives to enhance the resilience of OTC derivatives market' (issued by the European Commision on 3rd July 2009) are now available to download in full.

Essentially, the EACT supports the European Commission's focus on strengthening financial stability and welcomes any initiatives that can lead to greater market efficiency. We do however have the certain serious concerns about the implications of the consultation document. These concerns are detailed in full in the PDF document that can be downloaded by clicking on the link at the bottom of this article.

If there is perceived to be an excessive risk between financial counterparties that poses a risk to financial stability, any new measures would be best directed at those financial counterparties. We have not seen any suggestion that financial stability is threated by credit risk on non-financial companies. We believe that non-financial companies using derivatives for hedging are not systemically significant.

 There should be no need to subject OTC deals initiated by the non-regulated corporate sector to any new processes and regulation. Removing from non-financial sector companies the flexibility of OTC dealing would potentially give rise to more commercial risks being left unhedged and to companies requiring more credit and capital; this will restrict their operations and have negative consequences for EU emloyment, taxation revenues, etc.

Finally it should be noted that implementation of the key proposals in the EC's consultation is likely to lead to further strengthening of the financial markets outside the EU and the US, with international companies within the EU continuing to access OTC derivatives by dealing in markets where current risk management can be continued without margin calls and standardisation of trades. 

Read the EACT comments in full by clicking here