International securities regulators have published a couple of reports offering guidance on efforts to strengthen the over-the-counter derivatives market.

The Technical Committee of the International Organization of Securities Commissions and the Committee on Payment and Settlement Systems have issued two consultative reports regarding the OTC derivatives market: one report offers guidance for central counterparties that clear OTC derivatives products; the other provides a set of considerations for trade repositories in OTC derivatives markets.

“These two complementary sets of high-level guidance constitute an important response of the CPSS and IOSCO to the recent financial crisis. They also reflect the G20’s recommendations for the strengthening of the OTC derivatives market,” said William Dudley, CPSS chairman, and Kathleen Casey, chairman of IOSCO’s Technical Committee.

IOSCO notes that a number of jurisdictions have encouraged greater use of CCPs in response to the financial crisis. “This is a positive development because a well designed CCP can reduce the risks and uncertainties faced by market participants and contribute to financial stability,” Dudley and Casey said.

“As the greater use of CCPs for OTC derivatives will increase their systemic importance, it is critical that their risk management should be robust and comprehensive. Moreover, because of the complex risk characteristics and market design of OTC derivatives products, clearing them safely and efficiently through a CCP raises more complex issues than the clearing of exchange-traded or cash products does,” they added.

Also in response to the crisis, trade repositories are being touted as a way to improve market transparency in OTC derivatives markets, by functioning as a centralized registry of open OTC transactions. In their report, regulators propose a set of factors that should be considered by TRs in designing and operating their services and by the authorities in regulating and overseeing TRs.

The two reports are being issued for consultation. Comments are due by June 25.

However, the CPSS and IOSCO do not plan to issue finalized reports after the consultation period. Instead, the guidance presented in the reports, as well as the feedback received in the consultation process, will be incorporated in the general review of the international standards for financial market infrastructures that was launched by the CPSS and the Technical Committee of IOSCO in February.

IE