Treasury and FSA have published the UK perspective on the reform of OTC derivatives markets. They think certain actions are needed to address the systemic shortcomings of the markets: greater standardisation of OTC derivatives contracts, which would help process efficiency and use of CCP and organised platform clearing and trading;  

  • stronger counterparty risk management, which should require all financial firms to use CCP clearing for eligible products;
  • international agreement on which products are "clearing eligible", so regulators can set targets for CCP usage;
  • appropriate capital charges that reflect risks to the financial system which should be higher for non-centrally-cleared trades; 
  • trade repository registration of all relevant trades to ensure regulators have access to information;
  • greater transparency of OTC trades to the market, although this should be calibrated to minimise scope for an adverse impact on liquidity; and
  • if all this happens, there should be no need to mandate trading of standardised derivatives on organised platforms.

The paper explains how the UK regulators think these measures should move forward.