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FSB: Work Still Needed on OTC Derivatives Reforms

The Financial
Stability Board (FSB) has released two new reports, which document that,
although good progress has been made in reforming the OTC derivatives markets,
there are still areas where improvements are needed.

In one of the reports,
Thematic Peer Review of OTC Derivatives
Trade Reporting
, the FSB says that “further work needs to be undertaken” to
ensure that the data collected by the trade repositories can effectively be
used by regulators.

Specifically the FSB
notes that there are widespread legal and regulatory barriers to reporting
complete transaction information.

“While in many cases
mechanisms exist to overcome these barriers (such as through obtaining
counterparty consent), in other cases barriers cannot be addressed in these
ways. FSB members have agreed to address remaining legal and regulatory
barriers to reporting complete information by June 2018 at the latest. Masking
of counterparty-identifying data will be discontinued by end-2018 once such
barriers are removed,” says the FSB in its report.

There are also
numerous barriers impeding authorities’ access to trade repository data,
according to the FSB. To solve this, FSB members have agreed that all
jurisdictions should have legal frameworks in place to facilitate data access
for both domestic and foreign authorities by no later than June 2018.

The other challenge
with regards to trade reporting highlighted by the FSB is that the quality and
usability of trade repository data is sometimes low. Several international work
streams have been set up to try and address this issue.

FSB member
jurisdictions will be asked to report by June 2016 on their planned actions to
address remaining barriers to full reporting.

Ravi Menon, Chairman
of the FSB’s Standing Committee on Standards Implementation, comments: “Trade
reporting is a core part of the reform agenda for OTC derivatives markets. We
have made good progress in implementing trade reporting requirements. But to
fully realise the potential of trade reporting to improve market
transparency, mitigate systemic risk, and minimise opportunities for market
abuse, further efforts are needed by all stakeholders – authorities, trade
repositories and market participants – to close the remaining gaps.”

In the other report, OTC
Derivatives Market Reforms: Tenth Progress Report on Implementation
, the FSB says that 90% of transactions
in its member jurisdictions are now subject to reporting requirements.

Similarly, half of the
FSB jurisdictions have central clearing frameworks in force that apply to over
90% of transactions in their markets, while in eight jurisdictions platform
trading frameworks are in force that apply to over 90% of transactions.

“It is important that
all jurisdictions have frameworks in force for assessing when it is appropriate
for transactions to be centrally cleared, or executed on organised trading
platforms, where appropriate,” says the FSB.
 

It also notes that
most jurisdictions are in the early phases of implementing the BCBS–IOSCO
framework for margin requirements for non-centrally cleared derivatives and
says that authorities should continue to push forward with implementation of
these requirements to ensure the agreed phase-in period commences smoothly in
September 2016. 


galen@profit-loss.com            Twitter: @Galen_Stops

Colin Lambert

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