New Regulation Possible for the EU

Thursday, 16 September 2010

Given the recent economic problems which have plagued some Eurozone countries such as Spain and Portugal, the EU body is considering new regulations to toughen up the requirements for banks and nations in the area.

The two in one regulations will be introduced to the Eurozone parliament in due course, and is expected to be voted on before the end of the year.

Whilst banks and countries will have to keep tighter controls on their funds, consumers are also being targeted – especially those who invest in derivatives markets. New rules will ensure that greater transparency is present in areas such as short buying and stop loss orders.

Whilst we don't believe that the rules will go as far as putting a complete stop to these types of trading orders – we do believe that each and every trade will have to be registered on a system for trades. This is especially the case with Forex trading.

At present, market makers simply accept orders from individual traders and place them in aggregate with other orders on the same currency pair from different clients. This is registered as a single trade on the system, and therefore the liquidity of the market can sometimes be slightly misleading.

These changes will mean that each and every trade executed or put up as an order, will simply be executed alone – with conditions – and listed individually.

Hence, the derivatives markets aren't really in for as much of a significant change as they are for greater transparency.

We certainly understand why these new rules are being looked at. Currently, there is very little transparency in the derivatives markets anywhere in the world. However, given that over 650 trillion USD is traded in derivatives each and every year, it makes sense to begin putting in place a bit of safeguard regulation. This regulation will not only protect companies and business – but also individual traders. It will end up making the system, on the whole, a lot more efficient and transparent.

Additionally, the new see through nature of the markets could prevent national crises such as the sovereign debt crisis which recently struck the countries aforementioned. This could help to provide stability in the future, even after all of the markets in the individual Eurozone countries have resolved their current problems.