The European Central Bank (ECB) has published the keynote address given by José Manuel González-Páramo (JMGP) (Member of the Executive Board of the ECB) at the 30th International Burgenstock Meeting on 9 September 2009. The address was entitled Some reflections on the future of the market for credit derivatives.

In his speech JMGP discusses market standards and initiatives. He strongly believes that industry initiatives are of the essence on the credit derivatives market. The ECB recognises that progress has been made in this regard and encourages further joint initiatives to promote transparency, in particular:

  • The extension of disclosure on counterparty risk, including indicators of counterparty concentration exposure, both for individual institutions and for the market as a whole.
  • The bridging of major data sources, in terms of their data coverage and methodologies, to allow market participants and regulators to obtain and benefit from a broad and consistent market overview.
  • The enhancement of transparency with regard to turnover volumes in the market, would be beneficial for both non-dealer market participants and regulators.

JMGP also states that market led initiatives need to be complemented by public sector interventions. This is particularly clear as regards market infrastructures. JMGP recognises that central counterparty clearing or exchange trading has the potential to greatly improve the resilience of over-the-counter (OTC) derivatives trading. In recognising the role that central counterparties (CCPs) may play in the future, the Governing Council of the ECB has confirmed the importance of having at least one CCP clearing facility for OTC derivatives in the euro area. The forthcoming ESCB-CESR recommendations for CCPs and the FSB Promotion of OTC Derivative Market Standards both provide guidance on the application of CCPs for OTC derivatives.

JMGP also discusses another public sector initiative concerning the measurement of credit risk transfer. The Committee on the Global Financial System (CGFS) mandated in September 2008 a Working Group (chaired by the ECB) to review credit risk transfer statistics collected under the auspices of the CGFS. The Working Group looked at users’ needs against the estimated reporting costs and concluded on a number of short and medium-to-longer term proposals to enhance the availability of statistics on CDS that are now being implemented, with first results expected during the course of this year.

View Some reflections on the future of the market for credit derivatives, 9 September 2009