EU Property Sector Commissioned Study Estimates EUR 64.9 Billion Of Impact From Proposed EU Derivatives Regulation

November 23, 2010

Proposed EU rules on derivatives could take an estimated EUR 64.9 billion of working capital away from Europe’s real economy as property businesses risk being required to collateralize their interest rate hedges with cash. This is the main conclusion of a Chatham Financial study commissioned by the European property sector to assess the impact of the European Commission’s proposed European Market Infrastructure Regulation (EMIR) released on September 15, 2010.

One of EMIR’s core requirements is that businesses deemed to be ‘financial’ entities must centrally clear their hedges and post cash collateral to a central clearing party. ‘Non-financial’ businesses, which use derivatives for hedging commercial risks are rightly excluded from these requirements. Absent legislative clarification, property businesses (which use interest rate hedges to protect against fluctuating interest rates), risk being misclassified as ‘financial’ entities and thus subject to onerous clearing requirements which would undermine the stability of the property and banking sector as well as diverting precious capital from the real economy.

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