Britain gives a warning of retreating over the new trading platforms that is being planned in the European Union.  This is in contrary to its earlier stand. Nevertheless, the new effort of the EU to form this brand new platform is brought by the support of various world leaders for EU leaders to come up with reforms in the market rules. Specifically, this is in order to make the bulk of the $700-trillion over the counter (OTC) derivatives is directed to a more transparent platform that will eventually end a certain blur, which made many regulators to worry during the financial crisis in 2008.

The new trading platform that has been introduced by the EU is called as the organized trading facility or the OTF. This will be regulated just like an exchange. This new platform will be trading various instruments like derivatives, shares as well as other contracts. One rationale for creating this kind of new platform is to significantly shrink the OTC sector and make it work like an irregular and ad-hoc trade.

While this effort of the EU bloc to create a new kind of trading venue or platform, there are some sectors that are a little skeptical about it. For example, the Financial Services Authority or FSA of the United Kingdom (UK) is a bit concerned about the tendency of barring the banks and brokers from utilizing their own capital.

Further, the new platform might also affect the biggest chunk of the OTC market, which is the interest rate swaps that account for around 95% of the said market. This is because it will result to a significant withdrawal of liquidity according to the currently drafted guideline or rules. This new stand of the UK government is different from what it released previously expressing its support to scrap the OTF and replacing it with a new trading venue that will specifically intended for derivatives. This came from the worry rationale that OTF shall be allowed under some rigorous rules in order to address cases of conflict of interest.

 

Last Updated: February 9th, 2012