The committee backed applying clearing obligations to derivatives traded off an exchange – known as over the counter – while making compulsory reporting requirements for all derivatives.
However, while the economic committee voted by 36 to one in favour of the proposal, there remain several hurdles before it becomes law.
The legislation, which will be negotiated with government ministers, would require derivatives contracts to be centrally cleared where possible so trades are backed by a default fund to curb the risk. All transactions would be reported to a trade repository so regulators could see who is exposed to which trades if they go wrong.
The opaque nature and lack of any regulation of OTC derivatives, which are made between two parties, meant it was almost impossible to know the level of exposure of banks and other financial institutions when American banking giant Lehman Brothers and insurance firm AIG collapsed at the height of the financial crisis.
The EU will address financial sector trading in a separate reform known as the markets in financial instruments directive (MiFID), which is likely to be published in September.
Speaking following the vote, Socialist and Democrat group spokesman Udo Bullmann called for further reform to prevent commodity speculation, particularly on food prices, saying the Commission should make “specific provisions to prevent systemic risks and manipulative practices in MiFID and the market abuse directive”.
