By Ambrose Evans-Pritchard

A European super-regulator will have the final say over London’s vast derivatives market and will acquire powers to limit the positions taken by banks and hedge funds, according to draft plans released by the European Commission.

The proposals will also see traders facing capital charges if they choose to settle contracts outside the main exchanges. Over-the-counter trades will have to be cleared though a “central counterparty” so that regulators can keep tabs on overall risk.

“A paradigm shift must take place away from the traditional view that derivatives are financial instruments for professional use, for which light-handed regulation was thought sufficient,” said the draft. “Derivatives should be appropriately priced in relation to the systemic risk they entail, in order to avoid these risks being passed on to the taxpayers.”

Continue reading City’s Market in Derivatives Faces Control From Europe