LONDON The biggest shake-up in the European Union securities market is only half way complete with a heavy load of new rules yet to come, a top EU regulator said on Wednesday.
The 2007-09 financial crisis, which forced governments to shore up banks, unleashed a wave of new market and banking rules which are only now being rolled out to make the financial system safer and shield taxpayers in future crises.
Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA), the EU watchdog which writes rules to apply EU reforms, said the focus was shifting to implementation and supervision, which were just as important as basic lawmaking.
"It's the biggest overhaul of financial markets in history," Maijoor told a conference held by AFME, a European banking industry association.
But the complexity is such that ESMA will have to issue urgent guidance for markets in derivatives such as credit default swaps, interest rate swaps and commodity swaps.
Maijoor said ESMA would say in coming days how banks should deal with "frontloading", or a requirement for swaps already in circulation to be cleared if that class of product is later deemed to require mandatory clearing.
Banks are unsure over how to price swaps as uncleared swaps face higher margining charges than swaps passed through a clearing house, a third party backed by a default fund to ensure the trade is completed even if one side of the deal goes bust.
Uncleared swaps are seen as riskier by regulators.
"The solution will respect the EU law as there is a requirement for frontloading, but at the same time it will give certainty to stakeholders," Maijoor told Reuters on the sidelines of the conference.
Banks are hoping ESMA will rule that only swaps that have a long time to expiry should be affected, meaning that most if not all outstanding contracts could escape the rule.
ESMA is set to say around the end of this year which swaps must be cleared, a process that involves consultation with the industry and the European Parliament lasting 6-9 months.
If a cleared swaps contract becomes less frequently traded, ESMA would be able to scrap mandatory clearing but this process would also take 6-9 months under the EU law.
Maijoor hopes to find a faster way to make such a determination.
"In some cases we might need to react more quickly and a technical standard is not the instrument which allows such a quick intervention," Maijoor told the conference.
He hoped that ESMA would have authorised all clearing houses by the end of this year, as required under the new EU derivatives law.
(Editing by Mark Potter)