EU derivatives law change spurs competition hopes

LONDON, March 31 (Reuters) – European Union states want to extend a draft law curbing risk in privately negotiated derivatives to the whole sector, which could ultimately dent profitability of the world’s first mega bourse merger.

The bloc is scrutinising European Commission plans to regulate how derivatives contracts traded in the $600 trillion over-the-counter (OTC) sector should be centrally cleared.

Its latest compromise, seen by Reuters, omits OTC from its title, meaning the law would cover all derivatives market.

Dealers said this would avoid having a law for just one part of a market, which they say would be hard to enforce. Exchanges sense an attempt to rip open their vertically integrated model to competition in clearing.

The draft law has become politically heated since Deutsche Boerse (DB1Gn.DE) unveiled a $10.2 billion plan to merge with NYSE Euronext (NYX.N) to create a vertically integrated group with 94 percent of futures trading in Europe.

Building a bigger derivatives footprint is a core driver of the merger to create the world’s biggest exchange, one to compete with derivatives powerhouse CME (CME.O). Over a fifth of tie-up synergies will come from clearing.

But banks say the merged group should be opened up to clearing competition. Extending the law’s scope to regulating listed as well as OTC derivatives would achieve this goal.

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