IOSCO consults on risk mitigation standards for non-centrally cleared OTC derivatives

The International Organization of Securities Commissions today published the consultation report Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives, which proposes nine standards aimed at mitigating the risks in the non-centrally cleared OTC derivatives markets.

The proposed risk mitigation standards would contribute to the G20 effort to strengthen the OTC derivatives market in the wake of the global financial crisis. One of the key planks of the G20 reform programme has been to encourage the central clearing of standardised OTC derivatives. However, a substantial proportion of OTC derivatives are not standardised and hence not suitable for central clearing. The proposed standards are aimed at these non-centrally cleared OTC derivatives.

The proposed risk mitigation standards are expected to bring about three main benefits:

Promoting legal certainty and facilitating timely dispute resolution
Facilitating the management of counterparty credit and other risks
Increasing overall financial stability

The proposed risk mitigation standards, which are developed in consultation with the Basel Committee on Banking Supervision (BCBS) and the Committee on Payments and Market Infrastructures (CPMI), would complement the margin requirements developed by the BCBS and IOSCO in September 2013 in strengthening the non-centrally cleared OTC derivatives market.

The proposed risk mitigation standards cover nine areas:

Standard 1: Scope of Coverage
Standard 2: Trading Relationship Documentation
Standard 3: Trade Confirmation
Standard 4: Valuation with Counterparties
Standard 5: Reconciliation
Standard 6: Portfolio Compression
Standard 7: Dispute Resolution
Standard 8: Implementation
Standard 9: Cross-border Transactions

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