FSB: Progress in Implementing OTC Derivatives Market Reforms

The Financial Stability Board (FSB) published today its ninth progress report on implementation of OTC derivatives market reforms.

G20 Leaders agreed in 2009 to a comprehensive reform agenda for these markets, to improve transparency, mitigate systemic risk, and protect against market abuse.

To achieve these objectives, the G20 agreed that:

all OTC derivatives contracts should be reported to trade repositories (TRs);
all standardised contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties (CCPs);
non-centrally cleared contracts should be subject to higher capital requirements and minimum margining requirements should be developed.

The report published today finds that implementation of OTC derivatives market reforms is well underway, with the foundational authority needed to give effect to the full range of these reforms in place in most FSB member jurisdictions. The main findings are:

Implementation of reforms is most advanced for trade reporting and for higher capital requirements for non-centrally cleared derivatives.
There has been further incremental progress to promote central clearing of standardised OTC derivatives: at present five jurisdictions have central clearing requirements in effect for one or more specific product types, and over the next year further progress is anticipated in many jurisdictions for assessing if certain products should be required to be centrally cleared.
Few jurisdictions have regulatory frameworks in place to promote execution of standardised contracts on organised trading platforms. It continues to be important for jurisdictions to have frameworks in effect for assessing when it is appropriate for transactions to be executed on organised trading platforms.
Most jurisdictions are only in the early phases of implementing the BCBS–IOSCO framework for margin requirements for non-centrally cleared derivatives (internationally agreed phase-in periods were recently delayed, and now begin in September 2016).
Availability and use of centralised infrastructure to support OTC derivatives reforms continues to expand.

Authorities continue to note a range of implementation issues, though international workstreams that aim to address most of these issues are underway, including: steps to harmonise transaction reporting and to agree to a framework for uniform trade and product identifiers; further coordinated consideration of CCP resilience, recovery and resolution, and central clearing interdependencies; and ongoing multilateral and bilateral discussions to address cross-border regulatory issues (with several additional steps recently taken by authorities in this regard).

The FSB will continue to monitor and report on OTC derivatives reform implementation progress, including the effects of OTC derivatives reforms over time.

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