* Vote will open talks on final text to meet 2012 deadline
* UK still lobbying for scope to cover all derivatives
(Adds hedge fund industry comment, more detail)
By Huw Jones
LONDON, May 24 (Reuters) - The European Union will move closer to cracking down on derivatives on Tuesday while still leaving a regulatory gap with the United States which could be exploited by banks.
The near implosion of U.S. insurer AIG (AIG.N) and the collapse of U.S. bank Lehman Brothers during the financial crisis left regulators determined to shine a light on a $600 trillion sector where banks transact with each other.
Derivatives are used by companies and investors to guard themselves against unpredictable moves in interest rates, inflation or commodity prices.
The open-ended and opaque nature of derivatives made it hard for regulators to quickly assess who were exposed to Lehman Brothers and by how much, creating huge uncertainties for markets.
The European Parliament's economic affairs committee votes in Brussels on an EU law Tuesday from 1300 GMT to standardise derivatives so they can be centrally cleared to curb risk and improve transparency.
Reuters reported on Friday that the lawmakers had reached a deal on a draft law to cover mainly off-exchange or over-the-counter derivatives (OTC). [ID:nLDE74J1DB]
"The compromise on the scope is that it will cover only OTC for clearing, but all transactions will have to be reported so that the European Securities and Markets Authority will have a full picture," a source close to the parliamentary talks said last week.
AIMA, a hedge fund lobby, warned lawmakers not to create barriers such as effectively excluding the use of clearing houses not located in the 27-country bloc.
UK NOT GIVING UP
It will be a setback for Britain, Europe's top derivatives trading centre, which wants to cover all derivatives so that users of exchanges have a choice of clearing house.
"We must make sure that the obligation to clear and report trades must apply to all derivatives," UK financial services minister Mark Hoban told a legal association on Monday evening.
After Tuesday's vote, parliament and the EU states will meet to hammer out a final version of the new law.
But EU states have yet to agree on scope but some diplomats said the UK may win out in the final text if safeguards are added to ensure that clearing choice is not risky.
Germany is seen as among the few countries with strong feelings against widening the law's scope.
Lawmakers are expected to allow clearing houses for shares to link up with each other, parliamentary sources said.
The crackdown is part of globally agreed effort and the United States has already approved its own law, known as the Dodd-Frank Act. It goes further and includes regulating how derivatives are traded as well as cleared and reported.
The EU will address trading in a separate reform known as the markets in financial instruments directive (MiFID) but this may not be published until September, industry officials say.
This means the market, dominated by big transatlantic banks, will not have a clear regulatory picture for many months.
The battle over the scope of regulation became politically charged because of Deutsche Boerse's (DB1Gn.DE) planned takeover of NYSE Euronext (NYX.N).
If approved by competition authorities, the tie-up will combine Europe's two main derivatives exchanges LIFFE and Eurex, which account for over 90 percent of listed derivatives trading.
Eurex has its own clearing house, which would stand to gain extra volumes -- probably at the expense of Anglo-French LCH.Clearnet -- and banks want to be able to choose where they clear their trades. (Reporting by Huw Jones; Editing by Tim Dobbyn and Mike Nesbit)
* Vote will open talks on final text to meet 2012 deadline
* UK still lobbying for scope to cover all derivatives
(Adds hedge fund industry comment, more detail)
By Huw Jones
LONDON, May 24 (Reuters) - The European Union will move closer to cracking down on derivatives on Tuesday while still leaving a regulatory gap with the United States which could be exploited by banks.
The near implosion of U.S. insurer AIG (AIG.N) and the collapse of U.S. bank Lehman Brothers during the financial crisis left regulators determined to shine a light on a $600 trillion sector where banks transact with each other.
Derivatives are used by companies and investors to guard themselves against unpredictable moves in interest rates, inflation or commodity prices.
The open-ended and opaque nature of derivatives made it hard for regulators to quickly assess who were exposed to Lehman Brothers and by how much, creating huge uncertainties for markets.
The European Parliament's economic affairs committee votes in Brussels on an EU law Tuesday from 1300 GMT to standardise derivatives so they can be centrally cleared to curb risk and improve transparency.
Reuters reported on Friday that the lawmakers had reached a deal on a draft law to cover mainly off-exchange or over-the-counter derivatives (OTC). [ID:nLDE74J1DB]
"The compromise on the scope is that it will cover only OTC for clearing, but all transactions will have to be reported so that the European Securities and Markets Authority will have a full picture," a source close to the parliamentary talks said last week.
AIMA, a hedge fund lobby, warned lawmakers not to create barriers such as effectively excluding the use of clearing houses not located in the 27-country bloc.
UK NOT GIVING UP
It will be a setback for Britain, Europe's top derivatives trading centre, which wants to cover all derivatives so that users of exchanges have a choice of clearing house.
"We must make sure that the obligation to clear and report trades must apply to all derivatives," UK financial services minister Mark Hoban told a legal association on Monday evening.
After Tuesday's vote, parliament and the EU states will meet to hammer out a final version of the new law.
But EU states have yet to agree on scope but some diplomats said the UK may win out in the final text if safeguards are added to ensure that clearing choice is not risky.
Germany is seen as among the few countries with strong feelings against widening the law's scope.
Lawmakers are expected to allow clearing houses for shares to link up with each other, parliamentary sources said.
The crackdown is part of globally agreed effort and the United States has already approved its own law, known as the Dodd-Frank Act. It goes further and includes regulating how derivatives are traded as well as cleared and reported.
The EU will address trading in a separate reform known as the markets in financial instruments directive (MiFID) but this may not be published until September, industry officials say.
This means the market, dominated by big transatlantic banks, will not have a clear regulatory picture for many months.
The battle over the scope of regulation became politically charged because of Deutsche Boerse's (DB1Gn.DE) planned takeover of NYSE Euronext (NYX.N).
If approved by competition authorities, the tie-up will combine Europe's two main derivatives exchanges LIFFE and Eurex, which account for over 90 percent of listed derivatives trading.
Eurex has its own clearing house, which would stand to gain extra volumes -- probably at the expense of Anglo-French LCH.Clearnet -- and banks want to be able to choose where they clear their trades. (Reporting by Huw Jones; Editing by Tim Dobbyn and Mike Nesbit)
* Vote will open talks on final text to meet 2012 deadline
* UK still lobbying for scope to cover all derivatives
(Adds hedge fund industry comment, more detail)
By Huw Jones
LONDON, May 24 (Reuters) - The European Union will move closer to cracking down on derivatives on Tuesday while still leaving a regulatory gap with the United States which could be exploited by banks.
The near implosion of U.S. insurer AIG (AIG.N) and the collapse of U.S. bank Lehman Brothers during the financial crisis left regulators determined to shine a light on a $600 trillion sector where banks transact with each other.
Derivatives are used by companies and investors to guard themselves against unpredictable moves in interest rates, inflation or commodity prices.
The open-ended and opaque nature of derivatives made it hard for regulators to quickly assess who were exposed to Lehman Brothers and by how much, creating huge uncertainties for markets.
The European Parliament's economic affairs committee votes in Brussels on an EU law Tuesday from 1300 GMT to standardise derivatives so they can be centrally cleared to curb risk and improve transparency.
Reuters reported on Friday that the lawmakers had reached a deal on a draft law to cover mainly off-exchange or over-the-counter derivatives (OTC). [ID:nLDE74J1DB]
"The compromise on the scope is that it will cover only OTC for clearing, but all transactions will have to be reported so that the European Securities and Markets Authority will have a full picture," a source close to the parliamentary talks said last week.
AIMA, a hedge fund lobby, warned lawmakers not to create barriers such as effectively excluding the use of clearing houses not located in the 27-country bloc.
UK NOT GIVING UP
It will be a setback for Britain, Europe's top derivatives trading centre, which wants to cover all derivatives so that users of exchanges have a choice of clearing house.
"We must make sure that the obligation to clear and report trades must apply to all derivatives," UK financial services minister Mark Hoban told a legal association on Monday evening.
After Tuesday's vote, parliament and the EU states will meet to hammer out a final version of the new law.
But EU states have yet to agree on scope but some diplomats said the UK may win out in the final text if safeguards are added to ensure that clearing choice is not risky.
Germany is seen as among the few countries with strong feelings against widening the law's scope.
Lawmakers are expected to allow clearing houses for shares to link up with each other, parliamentary sources said.
The crackdown is part of globally agreed effort and the United States has already approved its own law, known as the Dodd-Frank Act. It goes further and includes regulating how derivatives are traded as well as cleared and reported.
The EU will address trading in a separate reform known as the markets in financial instruments directive (MiFID) but this may not be published until September, industry officials say.
This means the market, dominated by big transatlantic banks, will not have a clear regulatory picture for many months.
The battle over the scope of regulation became politically charged because of Deutsche Boerse's (DB1Gn.DE) planned takeover of NYSE Euronext (NYX.N).
If approved by competition authorities, the tie-up will combine Europe's two main derivatives exchanges LIFFE and Eurex, which account for over 90 percent of listed derivatives trading.
Eurex has its own clearing house, which would stand to gain extra volumes -- probably at the expense of Anglo-French LCH.Clearnet -- and banks want to be able to choose where they clear their trades. (Reporting by Huw Jones; Editing by Tim Dobbyn and Mike Nesbit)
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