Today, the Federal Reserve Bank of New York (FRBNY) hosted a meeting for major market participants and their domestic and international supervisors to discuss ongoing efforts to strengthen the infrastructure of the over-the-counter (OTC) derivatives market. FRBNY President William Dudley stated that while “collective international efforts have increased operational efficiency and created greater transparency…, banks and buy-side firms still need to make considerable improvements to both risk management and the design of the OTC derivatives markets.”

In its press release, the FRBNY acknowledged that industry participants have already taken the following steps to improve the OTC derivatives market infrastructure:

  • Establishing credit default swap (CDS) central counterparties (CCPs);
  • Increasing market transparency by expanding information publicly available about the CDS markets; and
  • Reducing the size of CDS portfolios via multilateral trade terminations.

Market participants also agreed to provide regulators, by May 29, 2009, details on how they will address the following priorities to further strengthen the OTC derivatives market infrastructure:

  • Complete incorporating, or “hardwiring,” the auction-based settlement mechanism into standard CDS documentation;
  • Expand operational performance targets, including moving to an automated processing environment that can handle both volume spikes and future growth across all OTC asset classes;
  • Expand use of CDS CCPs and trade repositories and report trades not cleared through a CCP; and
  • Support broad-based market governance and decision making processes, including both buy-side and sell-side participants’ viewpoints.