Increasing regulation of financial trading

After the 2008 crash, regulators from the G20 and from Brussels have been looking for ways to reduce risk of derivatives trading.

One new piece of legislation requires more ‘over the counter’ or off-exchange derivative trades to be handled by a ‘Clearing House’, which manages the trade and guarantees the transaction is completed if one side defaults. This makes it more likely that risks are priced into the system, the knock-on impacts of defaults are lower, and it increases the availability of information about the trades.

One side-effect of this is that clearing houses are worth more (owing to higher turnover), and LCH, London’s largest clearing house, is currently deciding between rival bids.

At the same time, US authorities are targeting cross-border finance deals that they say have constituted tax avoidance on billions of dollars of trades.

Banks in turn are counter-suing for what they say are unpaid tax credits.

Both these actions are taking place within a growing trend towards global harmonisation on trading regulation, and consolidation of global stock markets.

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