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US-EU-FINANCIALREGULATION:EU eyes rules for dealing with failing clearers and insurers
By Claire Davenport
BRUSSELS (Reuters) - The European Commission may draw up rules for rescuing and closing down failing clearing houses and insurers, as regulators across the world seek to prevent collapsed businesses from wreaking havoc in financial markets.
Clearing houses and insurers, which are critical for the daily running of financial markets, already handle huge volumes of trades and some of them will soon take on new trades worth over $600 trillion.
Clearing houses, such LCH.Clearnet and Deutsche Boerse's Eurex Clearing, sit between the parties at either end of a trade to ensure it is completed.
They protect companies from default because they hold collateral on behalf of their numerous members that can be used to reimburse individual firms if one member becomes insolvent - a standard model used in various exchange-traded markets around the world.
The Commission said on Monday it had launched a consultation to see if companies like central counterparties, securities depositories and systemic insurance companies need rules for their recovery and resolution.
The EU's top regulator, Commissioner Michel Barnier, is already promoting the creation of an agency to wind down problem banks, but this does not apply to clearing houses and insurers.
Central securities depositories say the same rules that apply to winding down banks cannot also be applied to them because their operations are needed to keep markets going.
Central counterparties recently became more important to the financial system after new regulation put them in charge of clearing so-called over-the-counter derivatives estimated to be worth over $600 trillion, according to figures from the Bank for International Settlements.
Britain announced at the beginning of August that it would give its regulators new powers to wind down failing clearing houses, saying that similar EU moves were too slow to arrive.
The UK law would allow the Bank of England to step in and ensure continuity in critical clearing services.
(Reporting by Claire Davenport; Editing by Mark Potter)