OTC derivatives market reform stalling - FSB

OTC derivatives market reform stalling - FSB

Central bankers have expressed fears that reform of the over-the-counter derivatives markets is being hampered by delays and inconsistencies in approaches across national jurisdictions.

In a state-of-the-nation report on OTC market reforms, the international Financial Stability Board (FSB) sets out progress made toward implementation of the G20 commitments concerning standardisation, central clearing, exchange or electronic platform trading, and reporting of OTC derivatives transactions to trade repositories.

Amid concerns that many markets may not meet the G20's end-2012 deadline, the FSB urges national jurisdictions to take "substantial, concrete steps toward implementation immediately".

Differences in approaches are emerging in some areas that could weaken the effectiveness of reforms in these markets, states the FSB, creating potential opportunities for regulatory arbitrage and subjecting market participants and infrastructures to conflicting regulatory requirements.

"Divergent approaches to requirements for the reporting of transaction data to trade repositories may lead to difficulties in cross-border sharing of data or aggregating data on a global basis unless steps are taken to ensure consistency," states the report. "Potential emerging inconsistencies may also be seen in the development and future application of clearing requirements and strengthened margining/collateralisation practices across asset classes, products and market participants, and requirements for trading on multi-dealer versus single dealer platforms."

To combat the latter concern, the FSB has asked international securities regulators under Iosco to undertake further analysis on market use of multi- or single dealer platforms.

The FSB is looking for feedback on the report which should be submitted by 16 May 2011. A further progress report will be published in October.

Read the full report.

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