Regulators are poised to reform over-the-counter derivative markets. Firms may be obliged to use central counterparties to clear standard contracts, and to report all trades to an official repository. Kevin Samborn, director at Boston-based consulting firm Sapient, warns that firms will need to do a lot of work on their IT systems to comply.
Following the collapse of Lehman Brothers and the near-failure of AIG, financial authorities in the USA, Europe and Asia are planning overhauls of the regulatory framework surrounding the OTC derivative markets.
Proposals put forward by the US Treasury include having standardised OTC contracts cleared by central counterparties (CCPs), moving such contracts to regulated exchanges, and compulsory reporting of all derivatives transactions, both standardised and customised, to a trade repository.
The European Commission has made it clear that it, too, intends to encourage greater standardisation to facilitate centralised clearing and, ultimately, exchange trading of OTC contracts. Asian...