FSB reports on OTC derivatives markets: FSB has released a report on reforming OTC derivatives regulation. The report, prepared by a working group, sets out 21 recommendations based on agreed international positions. It stresses that the need for transparency in the markets is important for financial stability as well as for monitoring purposes. The recommendations cover:

  • standardisation: recommendations include that more of the market should be standardised, and regulators and authorities should consider what incentives or regulation are needed to do this. The recommendations look at post-trade and product standardisation, central clearing and the position of bespoke products;
  • central clearing: the recommendation is that all standardised derivatives should be centrally cleared in order to mitigate systemic risk. The report sets out factors for determining whether a contract is standardised and so should be centrally cleared. Recommendations also cover mandatory clearing requirements, risk management requirements for non-centrally cleared markets, and supervision, oversight and regulation (including of capital and governance) of central counterparties (CCPs);
  • exchange or electronic platform trading: recommendations look at possible platforms, and regulatory action to encourage their use. IOSCO will identify how to achieve the G-20 commitment that all standardised products be traded on exchanges or electronic trading platforms, where appropriate, and will report by the end of January 2011; and
  • reporting to trade repositories: authorities need full and timely access to data which will give them information necessary for carrying out their regulatory mandates. All OTC derivatives transactions must be reported to trade repositories. Data in trade repositories must be comprehensive, uniform and reliable and be able to be aggregated if appropriate.