The Financial Stability Board (FSB) has
published its latest progress report on the implementation of reforms of the
OTC derivatives market and says that although progress continues to be made, “further action is required,
particularly on implementing margin requirements and platform trading
The report notes that
trade reporting requirements for OTC derivatives and higher capital
requirements for non-centrally cleared derivatives (NCCDs) are “mostly” in
force and central clearing frameworks are being implemented.
By contrast, it warns,
however, current indications are that “a substantial number” of jurisdictions
will not have margin requirements for NCCDs in force in accordance with the
internationally agreed implementation schedule for these reforms, while
platform trading frameworks are relatively undeveloped in most jurisdictions. “Authorities
continue to note a range of implementation challenges, many of which FSB
members are seeking to address through international workstreams,” FSB states.
The report finds that requirements
covering over 90% of OTC derivative transactions were in force as at 30 June
2016 in 19 out of 24 FSB member jurisdictions; by end-2017, 23 of these
jurisdictions expect to have such requirements in force.
FSB says work is also progressing
on developing harmonised trade and product identifiers, and the governance
frameworks around those.
The report also findsthe
majority of FSB jurisdictions (14) had in force frameworks for determining when
standardised OTC derivatives should be centrally cleared that cover over 90% of
OTC derivative transactions. Central clearing requirements were adopted in
several FSB jurisdictions since the previous progress report in November 2015 and
the total is expected to reach 10 jurisdictions by end September 2016, mostly
for interest rate “derivatives, an asset class for which there is widespread
availability of central counterparties (CCPs)”.
On capital and margin,
the report notes that while higher capital requirements for exposures to NCCDs
are largely in force (with 20 jurisdictions having requirements in force that
apply to over 90% of OTC derivatives transactions), less progress has been made
in the implementation of margin requirements for NCCDs.
By end-September 2016
requirements consistent with the internationally agreed phase-in schedule are
due to be in force in only three jurisdictions. Furthermore, at this time
around half of member jurisdictions do not appear on track to have implemented
variation margin requirements in accordance with the second and final phase
(March 2017). “Such jurisdictions should urgently take steps to implement these
reforms,” the FSB states.
determining mandatory platform trading requirements are in force in 11
jurisdictions, and requirements are in place in three jurisdictions,’ the FSB
reports, adding “few” other jurisdictions have further implementation steps
planned. “It is important that all jurisdictions have frameworks in place for
regularly assessing when it is appropriate for transactions to be executed on
organised trading platforms,” FSB states, adding it will continue to monitor
and report on OTC derivatives reform implementation progress, including the
effects of OTC derivatives reforms over time.