FSB reports that OTC derivatives reforms have plateaued

The Financial Stability Board (FSB) published its annual progress report on the implementation of the agreed G20 reforms to over-the-counter (OTC) derivatives markets. Overall there has been limited additional implementation of the reforms between end-November 2018 and end-September 2019.

The report notes the following progress:

Trade reporting: 23 out of 24 member jurisdictions have comprehensive requirements in force, an increase of one during the reporting period. Jurisdictions report efforts to reduce reporting barriers and masking relief, wider use of the legal entity identifier in trade reporting, and streamlining reporting processes and trade repository operations. Authorities are increasingly aggregating data from multiple trade repositories.

In the context of trade reporting, the FSB also updated on the use and aggregation of trade repository data by authorities: Jurisdictions reported an ncreased use of TR data during the reporting period. A few jurisdictions that previously did not access data started preliminary data quality work or progressed from working on data quality analysis to making manual ad-hoc queries for a number of use cases.

A shift from manual to automated analysis occurred mostly for systemic risk assessment (Hong Kong and Italy) and supervision of market participants (Mexico). Finally, one jurisdiction (Switzerland) started doing manual data analysis to support monetary policy implementation and to exercise the function of lender of last resort.

Authorities in some jurisdictions reported new efforts since end-November 2018 to aggregate data among TRs. For example, Hong Kong is conducting dialogues with foreign authorities to gain access to a number of foreign TR data.

Several jurisdictions have built new infrastructures to facilitate TR data aggregation and analysis.

In the EU, building on ESMA’s service which provides a single point of access to standardized TR reports (TRACE), the ECB and ESRB have built an internal dedicated, high-performance IT infrastructure to facilitate the automated collection, processing and aggregation of data from multiple TRs.

With a similar goal, the UK FCA has finalized a system to receive and aggregate data from multiple TRs located within the UK. The Hong Kong TR has developed a protocol to facilitate sharing data with domestic and foreign authorities via a dedicated web portal for real-time inquires and via other methods (including offline data file transfers).

Central clearing: Eighteen jurisdictions have in force comprehensive standards/criteria for determining when standardised OTC derivatives should be centrally cleared. In a few of these 18 jurisdictions, a wider range of products is now subject to mandatory clearing. Central counterparties (CCPs) have been active, with some CCPs filing for authorisation to clear transactions involving new asset classes in a number of jurisdictions, and other CCPs withdrawing from certain market segments.

Margin requirements: Sixteen jurisdictions have in force comprehensive margin requirements for non-centrally cleared derivatives, which represents an increase of one during the reporting period. Estimates of collateralisation rates are available in 10 of these 16 jurisdictions and continue to increase, particularly in credit and equity derivatives.

Higher capital requirements for non-centrally cleared derivatives: Interim higher capital requirements for non-centrally cleared derivatives are in force in 23 of the 24 FSB member jurisdictions. Only seven jurisdictions (albeit four more than at end-November 2018) have implemented the final capital requirements, both due to have been implemented by January 2017.

Platform trading: Comprehensive platform trading requirements are in force in 13 jurisdictions, a number which has remained unchanged during the reporting period.

Cross-border coordination and issues: One jurisdiction started exercising deference during the reporting period with regard to foreign jurisdictions’ regimes. Several other jurisdictions extended deference to further jurisdictions.

Read the full report

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