Rules eased in shake-up of derivatives

GLOBAL regulators have eased the impact of new rules designed to make the $630 trillion derivatives market safer as they seek to avoid too-tight controls on the sector that some banks argue could harm economic recovery.

The Basel Committee of regulators and central bankers published their final rule for requiring banks and brokerages to post an initial margin on trades in derivatives known as swaps, if those trades do not pass through a “clearing house” which in itself generates a back-up if one party to the trade goes bust.

The reform is part of a wider shake-up of derivatives among the 20 leading economies (G20). It includes mandatory clearing and on-exchange trading of contracts where possible, and for all transactions to be recorded.

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Regulators want to apply lessons from the 2007-09 financial crisis in which the opaqueness of derivatives such as credit default swaps – used to insure against falls in bond prices – played a central part in creating market uncertainty.

Use of a clearing house means trades are backed by a default fund as insurance.