Blade Watch

Finextra

The European Commission is calling for a technology-driven overhaul of the derivatives markets in a sweeping set of proposals aimed at strengthening the safety of the financial system.

In a policy response that broadly mirrors the regulatory initiatives expounded across the Atlantic, the EC says the financial markets should invest heavily in post-trade automation and standardised data management systems to reduce risks in the free-wheeling derivatives markets.

The set of papers released by the Commission highlight how derivatives in general and credit default swaps in particular have created a web of mutual dependence that makes it difficult to understand, disentangle and contain risk in the immediate aftermath of a default.

“The characteristics of OTC derivative markets – the private nature of contracting with limited public information, the complex web of mutual dependence, the difficulties of understanding the nature and level of risks – increase uncertainty in times of market stress and accordingly may undermine financial stability,” says the EC.

I wonder what standards, new technologies and platforms might result from this announcement?  We’ll have to see, interesting times are ahead as governments seek to strengthen and manage risk within the financial sector.

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