Sunday, January 17, 2010

Sixth Industry Meeting Hosted by the Federal Reserve Bank of New York

The Federal Reserve Bank of New York hosted a meeting today of major market participants and their domestic and international supervisors to discuss efforts to improve the infrastructure supporting the over-the-counter (OTC) derivatives market. Today’s meeting is the sixth such meeting with industry participants at the New York Fed.

“The industry must undertake a major transformation to bring significantly greater levels of transparency to these markets. Increasing the amount and quality of market information available to participants, regulators and the public is critical to the work of shoring up the stability and efficiency of the financial system,” said William C. Dudley, president of the Federal Reserve Bank of New York.

Market participants provided an update on developments in the OTC derivatives market and agreed to further improvements to support the overall goals of reducing risk and increasing transparency, including:

  • Expand central clearing for interest rate and credit derivatives: Market participants agreed to increase central clearing of transactions that are currently eligible to be cleared as well as to extend the range of products that are eligible for central clearing.
  • Expand regulatory reporting on OTC derivatives transactions: Market participants will provide regulators with enhanced analysis and reporting to help identify and target opportunities for improvements to increase clearing and standardization.
  • Improve risk management for non-cleared derivatives transactions: Market participants reaffirmed their efforts to formalize best practices for managing the risks of non-cleared OTC derivatives, including collateralization practices.

Market participants agreed to detail their next steps and commitments for addressing these priorities in a letter to regulators by March 1.

The New York Fed will continue to work with domestic and international regulators to encourage further improvements and transparency in the OTC derivatives infrastructure and market.

List of attending institutions

Comments by ISDA:

The International Swaps and Derivatives Association, Inc. (ISDA) today commented on the continuing progress of major member firms in their initiatives addressing further improvements to the privately negotiated derivatives industry infrastructure.

ISDA and its members continue to be committed to the delivery against industry goals in three key areas:

-- Strengthening and diversifying counterparty risk management through increased use of clearinghouses by extending their use to a greater number of individual market participants and product types;

-- Improving transparency by building and using trade repositories for interest rate, CDS and equity derivative transactions; and

-- Further strengthening the operational infrastructure of the privately negotiated derivatives business.

"With the direct input of the supervisory community, we have made significant progress in each of these areas and are determined to make more in the near future in line with ongoing commitments," said Eraj Shirvani, Chairman of ISDA and Head of Fixed Income EMEA at Credit Suisse. "We look forward to working constructively with the New York Fed and other policymakers on these initiatives."

In a January 14 meeting with supervisors, the industry outlined its accomplishments in the following areas:

-- Meeting clearing targets in respect of new and pre-existing eligible trades;

-- Achieving buy-side clearing;

-- Delivering on a range of collateral management targets, including portfolio reconciliation and dispute resolution procedures;

-- Establishment and go-live of trade repositories -- the industry interest rate trade repository has recently gone live and an equity derivatives repository is in build-out phase; and

-- Radically reducing, and in some product areas eliminating, confirmation backlogs.

ISDA and the industry have undertaken to deliver a further commitment letter to supervisors on March 1, 2010, extending and building upon prior commitments.

No comments: