Introduction

The year 2010 will be remembered as one in which dramatic reform was imposed on the global over-the-counter (OTC) derivatives markets. Landmark legislation has been enacted in the United States in the form of the Dodd- Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Proposals for change are pending in several countries operating in the Asian markets, including Japan and Hong Kong. Most recently, in September 2010, the European Commission (EC) published its formal proposals designed to regulate the OTC derivatives markets through enhanced market oversight, reduced operational and counterparty risk in trading, and increased market transparency (the EC Proposals).1 The EC Proposals build upon and strengthen previous communications from the EC, issued between July and October 2009, which examined the role that derivatives played in the financial crisis, the inherent benefits and risks of the derivatives markets, and how risk can be reduced.

The key measures through which the EC intends to achieve its goals include the establishment of trade repositories, the increased use of central counterparty clearing, and further standardisation of OTC contracts (which hitherto have been exempt from formal regulation). If enacted in their current form, the EC Proposals, which are slated for implementation by December 2012, seem likely to result in substantial changes to the structure and regulation of the EU commodities market. These potential changes are magnified when viewed in conjunction with the review of other pieces of ongoing EU legislation, most notably the Markets in Financial Instruments Directive (MiFID) and the Market Abuse Directive (MAD).