Euro Resolution Aims to Ease Derivatives Rules for Non-Financial Firms

Euro Resolution Aims to Ease Derivatives Rules for Non-Financial Firms

New derivatives rules are in danger of being undercut in European Parliament as the body works to finalize a resolution that would ease regulation for non-financial firms in particular. This recalibration of rules that once seemed inevitable may lead to uncertainty for banks and the broader market.

The resolution would cause a formal review of derivatives rules.

“The draft resolution is being put together now. There are legitimate concerns,” one of the parliamentary source told Reuters.

The impetus behind the new resolution is apparently the inflexibility of proposed derivatives rules with regard to non-financial firms that hedge with derivatives.

If the resolution passes, the European Commission and ESMA, the European Securities and Markets Authority, may have to retool pending derivatives rules.

Derivatives Clearing

The resolution aims to allow Parliament to look at derivatives clearing for non-financial entities. One example is the airline industry, which uses derivatives to hedge against sharp increases in the price of jet fuel if their value declines below a certain threshold. The debate, in the case of airlines, is whether the threshold is too high or too low.

In terms of derivatives clearing, non-financial firms are now forced to ”clear all classes of derivatives even if they only hit the clearing threshold in one asset, such as commodities.” (Reuters.)

In terms of predicting the course of derivatives legislation and oversight of regulators, this is the first instance of a Parliamentary resolution aimed at overseeing pending regulation in Europe. This suggests that Parliament may be becoming more contentious with regard to pending derivatives regulation.

The potential resolution from European Parliament comes as Germany accelerates and deepens its pending regulation of high-frequency trading. It may be that advocates of regulation and their critics are intensifying their approaches in Europe.

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About The Author


Felix Shipkevich

Felix Shipkevich

Mr. Shipkevich’s practice focuses on regulatory, transactional, and enforcement matters in the fields of futures, commodities, and derivatives. He works with Futures Commission Merchants (FCMs), Retail Forex Exchange Dealers (RFEDs), Introducing Brokers (IBs), Commodity Pool Operators (CPOs), Commodity Trading Advisors (CTAs), Swap Dealers (SDs), Swap Execution Facilities (SEFs), and domestic and offshore hedge funds. Mr. Shipkevich guides clients on procedures related to registration with the U.S. Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA), as well as domestic and international regulators in local jurisdictions. Mr. Shipkevich prepares and helps implement compliance, anti-money laundering (AML), and Electronic Trading Systems (ETS) procedures for clients in the commodities and derivatives fields.

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