Wednesday, August 24, 2011

FSB - Implementing OTC Derivatives Market Reforms

Implementing OTC Derivatives Market Reforms
25 October 2010

"In September 2009, G-20 Leaders agreed in Pittsburgh that:

All standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end- 2012 at the latest. OTC derivative contracts should be reported to trade repositories. Noncentrally cleared contracts should be subject to higher capital requirements. We ask the FSB and its relevant members to assess regularly implementation and whether it is sufficient to improve transparency in the derivatives markets, mitigate systemic risk, and protect against market abuse.

At the initiative of the Financial Stability Board (FSB), in April 2010, a working group led by representatives of the Committee on Payment and Settlement Systems (CPSS), the International Organization of Securities Commissions (IOSCO) and the European Commission was formed to make recommendations on the implementation of the G-20 objectives. The working group was comprised of international standard setters and authorities responsible for translating the G20 commitments into standards and implementing regulation. It focused on common approaches to OTC derivatives market reforms to achieve consistency in implementation across jurisdictions, while promoting greater use of OTC derivatives products in standardised form and minimising the potential for regulatory arbitrage. The working group will make regular reports on progress in implementing reforms to the FSB, with the first report to be given in March 2011..."


"This report includes 21 recommendations summarised below, which address practical issues that authorities may encounter in implementing the G-20 Leaders’ commitments concerning standardisation, central clearing, exchange or electronic platform trading, and reporting of OTC derivatives transactions to trade repositories:
  • Standardisation: The proportion of the market that is standardised should be substantially increased in order to further the G-20’s goals of increased central clearing and trading on organised platforms, and hence mitigate systemic risk and improve market transparency. The report sets out recommendations for authorities to work with market participants to increase standardisation, including through introducing incentives and, where appropriate, regulation.
  • Central clearing: To implement the G-20 commitment effectively, it is necessary to specify the factors that should be taken into account when determining whether a derivative contract is standardised and therefore suitable for clearing. The recommendations do this, as well as address mandatory clearing requirements; robust risk management requirements for the remaining non-centrally cleared markets; and supervision, oversight and regulation of central counterparties (CCPs) themselves.
  • Exchange or electronic platform trading: Further work is being set in train in the coming months to identify what actions may be needed to fully achieve the G-20 commitment that all standardised products be traded on exchanges or electronic trading platforms, where appropriate.
  • Reporting to trade repositories: Authorities must have a global view of the OTC derivatives markets, through full and timely access to the data needed to carry out their respective mandates. The recommendations help achieve this objective, including that trade repository data must be comprehensive, uniform and reliable and, if from more than one source, provided in a form that facilitates aggregation on a global scale.
This report aims to set ambitious targets for fully implementing the G-20 commitments, while minimising the potential for regulatory arbitrage. It sets appropriate deadlines to meet the G-20’s end-2012 commitments, and specifies bodies to take the recommendations forward..."


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