The Commission promises ambitious legal provisions for derivatives. The Communication, which has only a self-explanatory character, outlines the individual measures and the further course of action until legislative proposals are made, i.e. in 2010. What is interesting is the reasoning of the Commission: the financial crisis had not only been a setback for Europe on its way to achieve the Lisbon targets, but it had also shown how vulnerable the manufacturing industry had become because of the instability of the financial markets. An opinion, which had been vehemently held by labour representatives for years without being taking seriously by the Commission.

The derivatives trade involves immense amounts. If in 1998 the volume of traded derivatives was still about EUR 71 trillion, within 10 years this value exploded to inconceivable EUR 568 trillion. This roughly corresponds to the tenfold of the worldwide and respectively to the 2000fold of the Austria’s annual economic output. This is added by another trend, which has significantly contributed to the current financial crisis: the trade with derivatives does to a large extent take place in backrooms, beyond any control by state supervisory authorities. From EUR 568 trillion trading volume, about EUR 500 trillion were used for derivative transactions, which were not traded via public stock exchanges, called “Over-the-Counter” (OTC) in technical jargon. Here the parties mutually agree on the conditions “over the counter” whereby the supervisory authorities have no insight into what is happening. In reality, such deals are concluded by telephone or electronically via “private” dealer networks.

In order to shed light on the rather complex jungle of bilateral deals, which the public authorities have no insight into it would either have to be made mandatory to trade these via stock exchanges or an intermediary authority (central counterparty) would have to be involved, which would mediate between buyers and sellers of such products and be subject to regulatory supervision. The Commission is now outlining such proposals in its Communication.

The second Communication presented by the Commission this week concerns banks in crisis situations. Here too, the Commission - after years of inactivity - has come to the realisation that “urgent effective cross-border mechanisms for tackling banking crises had to be created”. This concerns a clear legal framework for cross-border banks in Europe, which dominate about 75 % of the entire banking business in the EU. Here the Commission asks interested circles within the scope of an EU-wide consultation, how the crises of such banks could be recognised at an early stage, which measures would have to be taken to properly deal with the insolvency of such institutes and who should bear the costs of a possible rehabilitation of these banks, if several Member States were affected


Further information:

Press release of the Commission on derivate markets

Communication of the Commission on derivative markets

Press release of the Commission on a new Framework for Cross-Border Crisis Management in the Banking Sector

Communication of the Commission on a new Framework for Cross-Border Crisis Management in the Banking Sector

AK position paper on the Communication of the European Commission: Ensuring efficient, safe and sound derivatives markets