By Huw Jones
LONDON, Sept 24 (Reuters) - Forcing over-the-counter derivatives onto exchanges could contradict other EU laws that promote competition in trading, an official with the bloc's executive body said on Thursday.
Turmoil from the demise of Lehman Brothers bank a year ago
and problems with the near-collapse of insurer AIG
The United States and European Union are debating new rules for the sector, focusing on better transparency and requiring as many of the privately traded contracts to be centrally cleared that is backed by a default fund to cut risk.
The United States wants to go a step further and shift as much OTC contract trading as possible onto exchanges.
U.S. lawmakers say if the EU does not follow suit then it could give European market participants an unfair advantage.
"In terms of the European situation, before mandating trading on regulated markets we have to take into consideration the current law," Maria Velentza, head of securities markets at the Commission's internal market unit.
The EU introduced the markets in financial instruments directive or MiFID two years to abolish stock exchange monopolies in trading shares and spur competition.
It sparked a new breed of alternative trading venues that have brought down trading fees.
Making OTC trading on exchanges mandatory would create a "discrepancy" with the MiFID rules, Velentza said.
"We need to take a comprehensive view to avoid imbalances with respect to different financial instruments," Velentza said.
The European Commission has powers to initiate pan-EU financial regulation and is consulting with industry as it prepares to decide on how to supervise derivatives better.
It hosts a conference in Brussels on Friday but Velentza said any decisions on possible legislation will be left to the new Commission which is due to come in later this year.
The derivatives industry -- and some of its top customers -- fear if trading is forced onto an exchange it would be harder to offer bespoke contracts that customers use to hedge specific risks using derivatives.
Daniel Trinder, executive director of government affairs at Goldman Sachs bank in Europe, said there would be some benefits to exchange trading of some OTC contracts.
"The key is you can't force liquidity where it does not want to go," Trinder said.
"Clients come to us looking for bespoke solutions. The exchange business is a scale business. I just don't see the possibility of migrating a lot of business onto an exchange," Trinder added. (Reporting by Huw Jones, editing by Ron Askew)