How has the UK responded to U.S. and pending EU OTC derivative legislation?
The UK Financial Services Authority believes that standardized trades do not necessarily need to be executed on a central trading platform. It, along with the UK Treasury, has said that central clearing could lead to situations where a central counterparty is forced to clear a contract for which it cannot manage risk effectively. While the FSA agrees with the U.S. that increased standardization is a necessity, it does not agree that central clearing should be required. However, the EU plans to mandate central-counterparty clearing of standardized derivatives and increase the visibility of transaction reporting in 2010, so it is unclear whether the U.K.’s opinion will influence European financial policy as a whole.
