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FSB: OTC derivative reforms lagging

Wednesday 12 October 2011 - by Will Henley

The Financial Stability Board has said it is unacceptable for countries to simply wait and see how over the counter derivatives rules turn out in the US and EU before starting to reform their own regimes.

In a second six monthly progress report released on Tuesday night, the Basel based body of regulators also admits that a G20 imposed deadline of 2012 for new standards looks increasingly in doubt.

The study details progress made since the reforms, which include a requirement for OTC derivative contracts to be reported to trade repositories, were endorsed by leaders at the Pittsburgh summit in September 2009.

Targets include ensuring that standardised OTC derivative contracts are traded on exchanges or electronic trading platforms and cleared through central counterparties. Non-centrally cleared contracts also need to be subjected to higher capital requirements under the goals.

The board concedes that consistency between different jurisdictions is critical, and says it is "understandable" that smaller markets want to see how reforms in the EU and US progress when developing their own frameworks.


"Nevertheless, it is important that all jurisdictions advance development of their legislative and regulatory frameworks as far as they are able even before finalisation of the US and EU regimes, to be in a position to act expeditiously once rules are finalised in these two largest OTC derivatives markets."

It continues: "With only just over one year until the end-2012 deadline for implementing the G20 commitments, few FSB members have the legislation or regulations in place to provide the framework for operationalising the commitments.

"While recognising the implementation challenges and the complexity of the needed laws and regulations, the report concludes that jurisdictions should aggressively push forward to meet the G20 end-2012 deadline in as many reform areas as possible."


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