Watchdog warns of chaos in competing derivatives rules

Mon Dec 9, 2013 5:57am EST
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By Huw Jones

LONDON (Reuters) - Failure to thrash out a common supervision of the $640 trillion global financial derivatives industry will split markets and bump up costs for end users, a top regulator said on Monday.

Banks who trade interest rate swaps, credit default swaps and other derivatives are looking to the United States and the European Union to harmonize their approach to new rules aimed at making markets more transparent.

Banks worry that rule clashes and overlaps will create legal uncertainties and extra compliance costs.

David Wright, secretary general of the International Organization of Securities Commissions (IOSCO), an umbrella group for regulators from across the world, warned it was a "recipe for chaos" that could get messy and anti-competitive.

"There is a model here which is a free for all and I think your costs will go up in a free for all," Wright told a conference organized by ICI Global, an asset management industry body.

Wright said slow progress in reaching transatlantic agreement on derivatives rules could see Asian countries like China and Indonesia going their own way.

"We can honestly say there is a growing frustration, particularly among our Asian Pacific friends about what's happening," Wright said.

"They are fed up being caught between two elephants."   Continued...

The Canary Wharf financial district is seen in east London February 28, 2013. REUTERS/Stefan Wermuth