The global hedge fund industry is encouraging European policymakers to push ahead with reforms of over-the-counter derivatives, saying that the benefits of reform will outweigh the costs.

The Alternative Investment Management Association (AIMA) says it wants to see EU policymakers implement the objectives on OTC derivatives that were laid down by the G20. The G20 has called for all OTC derivative contracts to be reported to trade repositories, all standardized contracts to be cleared through central counterparties and, as much as possible, traded on an exchange.

The group says that it welcomes the fact that the European Commission is likely to mandate central clearing of eligible contracts, and is set to propose harmonized requirements for the establishment and operation of CCPs and trade repositories.

AIMA also notes that hedge fund managers, which are significant users of OTC derivatives, would have to bear significant costs associated with administrative and operational changes the reforms would require, but it says the costs are worth it.

“Managers recognixe the need for such reforms and will continue to work closely with policymakers to ensure that reforms and new regulations are well thought-out, coordinated and give due consideration to all the parties active in the OTC derivatives market,” says AIMA CEO, Andrew Baker.

“This is one of the central pieces of the reform agenda leading to the reduction of systemic risk. If designed properly, all market participants will benefit. Moreover, the whole economy will benefit if the incidence and the impact of future market and financial instability is reduced,” he adds.

IE