Only 977 amendments to read…..

March 28, 2011

We only (!) have to work our way through 977 amendments to the EMIR (derivatives regulation) proposal to understand whether corporate Europe has a good chance of retaining its ability to use derivatives to mitigate commercial risk without committing to cash collateralisation.  The key work on this is the task of the members of ECON and it’s difficult not to feel just a little sympathetic to those on that parliamentary committee who take their responsibilities seriously as they should.

Of course even if the passage of EMIR through ECON (and therefore the European Parliament) is smooth there are the still the bear traps about which I’ve previously blogged to be overcome.  In short order these traps are the process of ‘trialogue’ in Brussels, the rule-making by ESMA and of course the final outcome on Basel III.

The amendments themselves largely address the primary concerns we and individual corporates have been arguing in Brussels and Strasbourg over recent weeks.  We want a sensible approach to what ‘objectively measurable’ means; avoidance of ‘clearing shock’ (backloading); recognition of group financing activities and intra-group activities linked with mitigating external risk; practicality in defining how the clearing obligation can be both incurred and shed; acceptance that certain types of pension funds (as in the UK, Holland and Sweden) need the same treatment as their corporate sponsors; and finally a commitment not to allow CRD IV (leading to Basel III) to undo the advantages of the treatment of corporates in EMIR.

Key dates now are the debate in ECON on 4 April and their vote on 20 April.  There is speculation that this timetable will be unachievable and from leafing through those 977 amendments I must – as suggested above – feel just a little sympathetic.

Trialogue only starts after the completion of the work in the European Parliament and as I understand it could prove either smooth-going or be contentious and political if there are real differences coming to the fore between the three EU institutions whose job it is to make the trialogue work – the Parliament, Council and of course the Commission.

And then we have ESMA – charged amongst all its other roles with the rule-making on EMIR.  At least the most senior appointments in ESMA have been completed.  In the EACT we look forward to working with the team as far as we can and of course contributing to the consultations that will be launched over the next eighteen months.

The outcome on CRD IV / Basel III is the most difficult one to predict.  It is clear to me that there is considerable sympathy in Brussels for the position we have argued – which is that CRD IV (in the first place) should not undo the good work of the corporate ‘exemption’ in EMIR by mandating punitive capital requirements on uncleared, bilateral OTC transactions.  I won’t repeat the arguments here about financial sector systemic risk – or lack of it – associated with corporate risk mitigation.  We will continue to try to influence the Basel III outcome.  I am however by now a slightly battle-scarred if usually optimistic veteran of influencing in Brussels; it is dispiriting to be advised by those with much more experience that Basel is a tougher nut to crack!

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