GLOBAL regulators agreed on minimum rules yesterday to shed light on the $700 trillion (£452 trillion) derivatives market, after being hamstrung by a dearth of information in the credit crunch, and to deter firms from moving trades to less regulated countries.
The International Organisation of Securities Commissions (IOSCO), a Madrid-based umbrella body for over 100 national market regulators, published 15 recommendations which members are obliged to enforce.
These include the licensing or registering of dealers; considering imposing capital requirements on dealers to reflect the risks they pose; and making dealers keep collateral on cleared traders belonging to customers separate from their own assets.
Leaders of the world’s top 20 economies (G20) agreed three years ago that from the end of 2012 derivatives trades should be recorded and centrally cleared and executed on electronic platforms.
They aimed to improve regulation after little-understood, lightly regulated derivatives products help bring down Lehman Brothers.
They aim to crack down on market participants wherever they are in the world, not just in the European Union or United States where tougher rules are already being adopted.
Such global minimum standards are aimed at deterring dealers from trying to shift business such as to Switzerland in the hope of escaping the tough EU and US derivatives rules that are being introduced from January.
“Historically, market participants in the OTC derivatives market have, in many cases, not been subject to the same level of regulation as participants in the traditional securities market,” IOSCO said in its report. “This lack of sufficient regulation allowed certain participants to operate in a manner that created risks to the global economy that manifested during the financial crisis of 2008,” IOSCO added.
City A.M. Reporter