The New York Federal Reserve Bank has released a letter from 14 major credit derivatives banks that pledges to clear settlement backlogs and tighten back office risk management procedures in the rapidly growing market.
The major dealers have agreed deadlines to reduce the number of outstanding trades and to provide regular monthly updates to regulators on progress in confirming deals.
The banks have also put their weight behind an ISDA-proposed automated protocol for assigning or transferring trades and pledged to persuade active hedge fund clients to participate in trade matching and settlement with the Depository Trust and Clearing Corporation.
In closing, the signatories state: "The commitments within this letter are made on the basis of the current state of affairs in the credit derivatives market. One or more major credit events affecting large volumes of contracts could significantly impact our ability to meet the described deadlines."
The NY Fed welcomed the proposals, which follow a special meeting between the regulator and banks to discuss the back office problems afflicting the industry.
The Fed says it will stake stock of the effectiveness of the proposed measures in the coming months and assess any additional steps that may be required.
To read the full text of the proposed measures:
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