As the over-the-counter (OTC) derivatives market adapts to intensified regulatory oversight, the Futures Industry Association (FIA) is recommending ways of improving the efficiency of the new clearing infrastructure that has emerged.
The FIA published recommendations Wednesday that aim to improving operational elements of the new OTC clearing infrastructure. The recommendations are designed to address inefficiencies at swap execution facilities and derivatives clearing organizations by, among other things, encouraging standardization of trade records, implementing kill switches, and standardizing trade data.
“Since the passage of Dodd-Frank, our industry has worked extraordinarily hard to build a new infrastructure for the central clearing of OTC derivatives. The fact that more than $400 trillion of swaps were cleared last year is a testament to our success in meeting this new regulatory mandate,” said Walt Lukken, president and CEO of the FIA.
“But we can’t stop there. The challenge before us now is to bring down the operational costs of trading and clearing swaps so that more clients can benefit from this new market infrastructure,” he said. “Today’s paper highlights several areas where we can work together as an industry to achieve meaningful progress towards greater efficiency in our trading and clearing processes.”
The recommendations, which were developed by the FIA’s Cleared Swaps Operations Committee, follow months of discussions among various market participants, including swap execution facilities, clearinghouses, credit hubs and affirmation platforms. The committee says that the industry is already moving to adopt some of its recommendations, and it expects to work with other industry groups and individual firms to encourage wider adoption.