Regulators call for post-trade improvements in OTC markets

Regulators call for post-trade improvements in OTC markets

The Bank for International Settlements is calling on financial firms to introduce automated systems to cut confirmation backlogs in the over-the-counter derivatives markets.

The Committee on Payment and Settlement Systems, the public policy forum of the central bankers' collective, is calling for improvements across the complete post-trade environment in the booming OTC markets.

In a report issued late Friday, the CPSS says institutions need to extend the successful efforts to reduce confirmation backlogs in credit derivatives to other OTC derivative products. The Committee cals for more systematic use of economic affirmations and says dealers should work toward daily portfolio reconciliations with their most active counterparties.

Central banks have become increasingly jittery about the damaging impact of systemic failures among highly-leveraged institutions trading in OTC derivatives and the potential for spilll-over to prime brokers and other market sectors. The CPSS report says market participants should identify steps to mitigate the potential market impact of replacing contracts following the closeout of one or more major participants.

The study also looks further up the value chain at clearing and settlement infrastructures and the moves towards centralised processing of trades and post-trade events.

It says that central banks and supervisors will need to consider whether to extend the more rigorous supervisory standards applied to securities and payments systems to emerging utilities for OTC derivatives. In advance of such moves, providers of essential post-trade services are urged to offer open access and ease of connectivity with other systems.

Full report:

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