BDI Economic Report

10/22/2010

At the end of September 2010, the European Commission presented proposals for regulation of trade in over-the-counter (OTC) derivatives.

The Commission’s proposals for regulation of alternative investors have long been the subject of controversial debates in the European Parliament. Both dossiers seem to be on a good way, although some details are still open.

The European Commission’s proposals for derivatives regulation seek to increase market transparency and to reduce the risks of trade in OTC derivatives. Industrial undertakings would also be obliged to publish their derivatives transactions if they exceed a given volume. It is difficult to find fault with the idea of greater transparency. However, the administrative costs must be kept under control. It is good to see that industry would be granted exemptions under certain conditions on the important question of the central clearing obligation. This is in line with BDI’s repeated representations. Mandatory Central Counterparty (CCP) clearing and bilateral collateralisation would still exist for non-financial businesses whose transactions exceed a certain threshold. However, derivatives positions which are patently intended to cover business risks would not be counted. The important thing now is that legal certainty is established quickly on the difficult demarcation issue of what is exempt from regulation. Compulsory CCP clearing for the entire derivative portfolio would be counterproductive. It would be appropriate that only the volumes above the threshold fall under compulsory CCP. The aim must be to ensure that companies can still deploy a flexible and affordable hedging policy.

Positive signals from the negotiations of the Alternative Investment Managers (AIFM) directive raise hope that the final text will be adopted at the end of October. The agreement on the third country rules seems appropriate. The »European pass« will not only be available for European funds and fund managers but also for third country funds and fund managers. A foreclosure of the European private equity market must be avoided at all costs. German companies badly need non-European venture capital.

Companies with a private equity investor shall have more
wide-ranging disclosure requirements than other companies. These disclosure rules only apply to companies with more than 250 employees and if private equity investors own a majority stake of the company, though.