Brussels studies derivatives reform

BRUSSELS, July 6 (UPI) -- The European Commission said it is studying reforming derivatives trading to increase transparency in a complex market.

Derivatives include credit default swaps, which act as insurance against a company's losses. The market turned on American International Group last fall, when the collapse of Lehman Brothers created a need for the insurance giant to payout enormous sums, the EUobserver reported Monday.

The Commission scheduled a public hearing for the issue for Sept. 25 and released a list of possible changes for public review.

The changes include formation of a clearing house for derivatives trading, which would increase transparency and act as a reserve for market data.

But, some believe increased transparency will not help.

Emrah Arbak of the Centre for European Policy Studies, a Brussels-based think-tank, said, "there are many examples of securities where the transactions are extremely transparent … and yet there are big problems," he said.

Charlie McCreevy, the European Commission's internal market commissioner, said in a recent statement derivatives "play an important role in the economy."

However, "the crisis has shown that they may harm financial stability," he said.