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CPSS, Iosco Release Trade Repository Report

Banks must report a minimum set of data on their derivatives trades from the end of 2012 to help regulators monitor systemic risk and financial stability, according to a report last Wednesday from the Committee on Payment and Settlement Systems (CPSS) and the technical committee of the International Organisation of Securities Commissions (Iosco).

The two organisations released proposals in response to Financial Stability Board recommendations made last October. The FSB urged supervisors to consult with relevant market authorities to ensure a minimum level of transaction data is regularly made available to regulators and is aggregated for regulatory dissemination on a global basis. A final report from the CPSS and Iosco is due by the end of 2011.

Regulators want a complete picture of the $600 trillion over-the-counter derivatives market at all times by requiring that banks provide transaction details to trade repositories. Current formats are based on voluntary agreements with banks.

The CPSS-Iosco report notes that the collapse of Lehman Brothers, along with the near-default of AIG and Bear Stearns, was exacerbated by a lack of information on OTC derivatives exposure.

“Public dissemination of data… promotes the understanding of OTC derivatives markets by all stakeholders, underpins investor protection and facilitates the exercise of market discipline,” the report states.

The two organisations set out in their report how they would achieve the timely collection, storage and distribution of data on OTC derivatives.

“The proposed requirements and data formats will apply to both market participants reporting to trade repositories and to trade repositories reporting to the public and to regulators,” they say.

Examples of trade repositories include the Trade Information Warehouse for credit default swaps and the Equity Derivatives Reporting Repository, both run by the Depository Trust & Clearing Corp.

Importantly, the report finds that shortfalls in available data may undermine attempts to use trade repositories. The lack of details on the value of trades “presents a potential gap in the data that authorities may require to fulfill” their mandates, the organisations say. More data on collateral would allow regulators to “better assess exposures, counterparty risk and ultimately systemic risk,” they say.

The CPSS and Iosco also want a global system for tagging each trade with legal entity identifiers (LEI) to identify the counterparties, and a classification system for identifying different types of OTC derivatives and their attributes.

The two organisations say comments on their report from all interested parties should be submitted by 23 September 2011. After the consultation period, they will review all the comments received and publish a final report.

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