EU rules to light up derivatives markets set for shaky start | EurActiv

EU rules to light up derivatives markets set for shaky start | EurActiv:

New rules coming into force in Europe this week to shine more light on the $700 trillion (€513 trillion) derivatives markets will take years to produce a clearer picture of these complex products which were at the heart of the financial crisis.

When Lehman Brothers collapsed in 2008 markets were in the dark over a tangle of derivatives on the US investment bank's books. Financial markets froze because of uncertainty about who was exposed to Lehman's derivatives, such as credit default swaps or interest rate swaps. US insurer AIG also ran up big losses linked to derivatives.

In response, politicians and regulators around the world called for action to make risks easier to spot in this opaque part of global financial markets.

The new EU rules, coming in on Wednesday, aim to increase transparency by requiring reporting of transactions.

But even if derivatives deals are captured in this process - a difficult enough task in itself - the data may be too fragmented to give a clear picture of the market and to show where risks might be building up.

In practice, a meaningful snapshot will not emerge for years, when all parties involved are reporting properly and all the data is linked. Until then risks in the markets may go unnoticed again until its too late.