Home > Investments > European
IMA warns over European over the counter derivatives
EU proposals to move from bilateral to central clearing for over-the-counter (OTC) derivatives should include further investor protections, the Investment Management Association (IMA) has warned.
The European Commission's consultation paper, Derivatives and Market Infrastructures outlined proposals to provide better choice and better record-keeping for investors, and improve contract portability for OTC derivatives.
But the IMA said: "We do not think reliance on record keeping should be overstated.
"Nor do we believe choice is always a good thing. In complex financial markets the consequences of choosing low cost/low protection versus high cost/high protection outcomes are not always obvious."
The trade association added it was inappropriate for markets handling investments linked to long-term savings, such as pension funds, insurance and Ucits funds' investments, "to promote options that deny proper regulatory protection to these underlying clients".
It therefore suggested the legislation should require full segregation of all client monies, assets and positions from the house account of the clearing member.
The IMA also raised concerns that the costs and operational burdens of the move to CCPs are not unduly placed on the client side.
Jane Lowe, director of markets at IMA, said: "The cost of central clearing should be proportionate to the risk. Unless the margin and collateral arrangements established within the CCPs are correctly calibrated, the cost of clearing will be borne disproportionately by the very people the legislation seeks to protect."
