andreas dombret : new regulation on trading with otc derivatives introductory statement by dr andreas dombret, member of the executive board of the deutsche bundesbank, to the panel discussion “ financial markets – finding a regulatory normal ”, euro finance week conference, frankfurt am main, 20 november 2012. * 1. * * introduction dear ladies and gentleman the regulation of the otc derivatives markets is more or less on track, but the ambitious timeline of the g 20 will not be kept. the g 20 goal to trade standardised derivatives on exchanges or electronic trading platforms and to clear all standardised otc derivatives through a central counterparty ( ccp ) by the end of 2012 will not be reached. whereas in europe the clearing obligation established by the european market infrastructure regulation ( emir ) is mostly in force. the trading obligation under the currently discussed markets in financial instruments regulation ( mifir ) will, together with the markets in financial instruments directive ( mifid ), not enter into force before 2015. it is remarkable that the united states has made more progress with implementing the trading and clearing obligation under dodd frank. however, this first mover advantage does not always produce the best solution for the global derivatives market. 2. multilateral approaches are more promising than bilateral solutions the forthcoming challenge will be the global application of the new regulatory framework. while the united states of america seeks a bilateral approach to assess the equivalence of third country regimes, the european stance is to negotiate on a multilateral basis to grant equivalence of different regulatory regimes. i am convinced that this approach is superior since it creates more legal certainty compared with a case by case equivalence assessment. 3. regulation will be without effect if there is no adequate implementation and supervision the implementation, application and introduction of the numerous rules will demand a huge effort : first of all, from the supervisors, as they have to supervise and oversee central infrastructures, as well as from the financial and non - financial industry. furthermore, ccps and market participants, both are affected. ccps have to adjust their risk management to cope with more clearing members and with accelerating volumes of derivatives to be cleared centrally. ccp clearing is required of market participants ; otherwise they have to accept higher capital and collateralisation requirements. besides, the standardisation of otc derivatives should make good progress, so that the clearing and trading obligation becomes operational as soon as possible. we are aware of the practical difficulties and do not underestimate the challenges that have to be met in

premiums, which would have rendered government borrowing that much more expensive. this expectation was not fulfilled, however. on the contrary, exceptional interest rate convergence even before monetary union enabled the previously high interest rate countries to borrow on exceptionally favourable terms. the fact that risk premiums for all countries of the monetary union contracted so heavily, receding in some cases to only a few basis points, is likely, among other things, to be attributable to investors ’ apparent doubts about the credibility of the exclusion of liability. in any event, most recent history has shown that the doubts about the no bail - out rule were not irrational. the fact is that the low interest rates caused a great deal of capital to flow into the euro - area periphery countries, which was not put to use in a very profitable manner. wage increases which outpace productivity growth put additional strains on the competitiveness of economies. on balance, public and / or private debt grew strongly while current accounts deteriorated. this was the breeding ground for the euro - area debt crisis, which began in 2010 following the global financial and economic crisis. the substantial increase in risk premiums for bonds of peripheral countries pushed several countries, in particular greece, to the brink of insolvency. in this crisis situation, the euro rescue packages and eurosystem measures prevented the crisis from escalating. however, these crisis measures permanently weakened the principle of individual responsibility. they caused a redistribution of risk and put elements of mutualised liability in place, disrupting the balance in the relationship between liability and control in the regulatory framework of monetary union : the set of options for controlling the member states ’ borrowing did not keep pace. one might argue that the fiscal rules were, in fact, tightened in the aftermath of the crisis – stability and growth pact, fiscal compact and european semester are concepts which come to mind. undoubtedly, these were steps in the right direction. but whether these tightened rules will have the desired binding effect remains to be seen. it is, above all, the european commission that is called upon to be strict in laying down the rules, and certain doubts are unfortunately justified. bis central bankers ’ speeches as we know, it is not the case that there haven ’ t been any rules in place thus far. however, they have been inadequately implemented. the deficit limit of 3 % of gdp has been breached seven times by germany, eight times by france and a whole of nine times by italy. according to the commission ’ s forecast