The Paper sets out ICAP's recommendations for improving the trading, transaction processing and risk management infrastructure supporting the OTC markets in the wake of the exceptional conditions that have dominated markets and financial trading in recent months.

These markets, which trade securities worth over $5 trillion per day, form the backbone of the world's financial system. The White Paper looks at ways to improve their liquidity and transparency and reduce operational risk, as well as recognising the contribution the OTC market has already made at reducing systemic risk through mechanisms such as portfolio compression.

The study, entitled "The Future of the OTC Markets", argues that the global wholesale OTC markets are critical to the worldwide financial system, and that their effective functioning is essential for the free flow and availability of capital, the mitigation of risk, and investor choice. While there have already been significant investments in developing OTC market infrastructure, ICAP argues that this existing infrastructure needs to be further developed and used more efficiently for the benefit of all.

ICAP's senior executives will be presenting the paper and discussing its findings to financial regulators and market professionals around the world in the coming months.
Its recommendations include:

• Wider adoption of electronic trading - Electronic trading creates greater price transparency, enables simpler and faster trade capture, affirmation and confirmation and easier supervision of trading activity.
• Quicker settlement cycles in all securities markets - A T+1 settlement cycle for all securities markets should be mandated.
• Faster and automated affirmation/confirmation of all derivatives trades - The affirmation and confirmation of all OTC trades in all markets needs to be automated and accelerated as close as possible to the trade date.
• Greater use of pre-booking netting - In many cases, transactions can legally and economically be netted, rather than settled on a gross basis.
• Wider adoption of central counterparty (CCP) give up and/or central clearing for OTC derivative markets - Those markets that do not already operate a central counterparty should introduce a CCP/clearing house that is independent of the trading platforms for those markets.
• Wider adoption of portfolio reconciliation - More regular and comprehensive reconciliation of OTC trade details and valuations between counterparties should be mandated.
• Wider adoption of portfolio compression in derivatives markets - More regular and comprehensive compression of derivative portfolios, ideally on a multi-lateral basis.

Commenting on the white paper, ICAP's chief operating officer Mark Yallop said: "OTC markets play a crucial role in the global financial system. They offer professional investors a deep and liquid trading environment and they have advantages which exchanges by their very nature cannot offer, notably the flexibility to negotiate transactions on an individual basis. This has made them the hub of innovation in the financial markets and have become a vital tool in the task of risk mitigation for almost all banks and other financial institutions.

"The OTC markets have performed well during the recent financial crisis. With the obvious exception of inter-bank lending, these markets have remained open and liquid throughout, often trading unprecedented volumes. Where some markets have become quieter it is very largely the result of market participants reducing their activity, rather than any flaw in the market itself. But despite the resilience of the OTC markets, we can still learn from the experiences of recent months and take steps to ensure that the OTC markets emerge from this even stronger.

"We believe the proposed measures we lay out today in this White Paper would strengthen the OTC markets and improve both liquidity and transparency for all market participants. We look forward to discussing these proposals with regulators and other market professionals as we all begin to learn the lessons of the recent financial turbulence."