The FSA has published a paper which is entitled The FSA’s markets regulatory agenda. The paper sets out the FSA’s strategy for regulating markets and highlights areas of key focus over the coming months.

The structure of the paper is:

  • Chapter 1 - Overview.
  • Chapter 2 - The FSA’s regulatory approach to markets.
  • Chapter 3 - The changing market context and the FSA’s approach to the resulting regulatory challenges.
  • Chapter 4 - The FSA’s markets regulatory agenda for 2010.

In the paper the FSA sets out a number of key priorities and these include:

  • Reforming over-the-counter (OTC) derivative markets to reduce systemic risk, using more robust counterparty risk management. This includes greater use of clearing, which will build on progress to date in clearing interest rate and credit derivatives, and strengthening the risk management of non-cleared trades.
  • Ensuring greater transparency of OTC markets for regulators, by greater use of trade repositories for main asset classes and more comprehensive transaction reporting for these markets across Europe.
  • Working with the Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions (CPSS-IOSCO) towards strong and globally harmonised standards for clearing houses to ensure the ‘single point of failure’ risk is appropriately addressed. The European Commission is expected to look to new CPSS-IOSCO standards for legislation it will table this summer.
  • Pressing for the MiFID review to consolidate and strengthen the quality of post-trade transparency data in equity markets and adjust the regulatory framework for trading venues so that there is a more consistent basis for the greater competition resulting from the Directive.
  • Supporting the MiFID review as the vehicle to introduce transparency requirements for major non-equity markets (e.g. corporate bonds, credit default swaps and other derivatives). Such transparency requirements need to be carefully calibrated so that they do not undermine liquidity in these markets.
  • Helping to implement a pan-EU regime to disclose short selling positions, building on earlier advice from the Committee of European Securities Regulators.
  • Continuing to pursue its credible deterrence policy of effective action against insider dealing and market manipulation.
  • Continuing to work with international counterpart regulators in order to fulfil the Pittsburgh G20 meeting remit to enhance transparency in the oil derivatives markets.
  • Implementing the new EU oversight regime for credit rating agencies and preparing for the European Securities and Markets Authority to take on formal legal responsibility.

The FSA recognises that changes to the markets regime, particularly establishing regulatory standards, must be developed and agreed almost exclusively at the international level.

The FSA is not conducting a formal consultation on its regulatory agenda, as there are no proposals for FSA rule changes at this stage. However, it does welcome any comments on the paper.

The FSA states that it will publish a further paper later this year which will consider a wider set of issues. These issues relate to the definition and value of well-functioning markets, the determinants of volatility, and the relationship between market efficiency and financial stability.

View The FSA’s markets regulatory agenda, 25 May 2010