All trades in financial derivatives will now be cleared by a central counterparty after an agreement was reached between the European Council and European Parliament yesterday.

During 2011, EU presidencies called for new rules to increase the transparency and safety in derivatives trading in order to reduce the risk of contagion stemming from the derivatives market. The Danish Presidency in particular pushed hard to conclude negotiations.

The new central counterparty will now ensure that both parties involved in a trade will get what they are owed and it will reduce the risk of one party becoming exposed if the other cannot pay.

A financial derivative is a useful instrument for the hedging of risk, particularly when underlying assets change in price. However, up till now, the opaqueness in the market has played a major role in such events as the collapse of Lehman brothers.

Denmark’s minister for business and growth Ole Sohn and its minister for economic affairs and the interior Margrether Vestager said: “The Danish EU Presidency has an ambition to contribute to strengthening financial regulation in the EU. Therefore we welcome the success in concluding an important agreement on the regulation of trading in financial derivatives.

“The rules are a big step towards counteracting future financial crisis.”

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