The European Commission is set to introduce legislation forcing market participants to adopt central clearing of credit derivatives transactions, an anonymous source from the EU's executive body has told Reuters.
According to the newswire, EU Internal Market Commissioner Charlie McCreevy will propose that a provision for mandatory clearing be inserted into the reform of EU bank capital rules the European Parliament and EU states are now adopting.
"We will insert it in the capital requirements directive," the source told Reuters.
The tough stance from the EU follows the failure of major dealers to meet a December deadline to agree a voluntary solution for central celaring of CDS transactions.
The Commission is keen to promote an EU-centric utility that can sit alongside Federal Reserve-approved North American-based clearing systems.
Both the CME and InterContinentalExchange are gearing up to launch new systems capable of global CDS clearing.
The Commission fears that a dominant system based on foreign soil would leave the EU with no legal recourse over disputed trades and collateral re-allocation in the event of a default.