IOSCO Forms Task Force On OTC Derivatives

by Robin Pilgrim, LawAndTax-News.com, London

19 October 2010

The Technical Committee of the International Organization of Securities Commissions (IOSCO) has formed a task force on over-the-counter (OTC) derivatives markets’ regulation, in order to coordinate securities and futures regulators’ efforts to work together in those markets.

IOSCO is recognized as the leading international policy forum for securities regulators. The organization's membership regulates more than 95% of the world's securities markets in over 100 jurisdictions, and its membership is steadily growing.

In April 2010, a Working Group was formed at the initiative of the Financial Stability Board (FSB) to make recommendations for how securities and futures regulators, prudential supervisors and market participants could give effect to the G-20’s objectives for improving the OTC derivatives markets. The Working Group is co-chaired by the Bank for International Settlements’ Committee on Payment and Settlement Systems (CPSS), IOSCO and the European Commission (EC).

In its September 20, 2009 communiqué the G-20 had stated that, “standardized OTC derivatives contracts should be traded on exchanges or electronic platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest.”

Hans Hoogervorst, Chairman of the Netherlands Financial Markets Authority and Chairman of IOSCO’s Technical Committee, said: “IOSCO has identified the need for enhanced international coordination between securities regulators in order to support the global reform efforts currently underway regarding OTC derivatives regulation. Many jurisdictions are currently adopting legislation that provides securities and futures regulators with an important role in the regulation of the OTC derivatives markets.”

“As regulators implement their new legislative mandates,” he added, “close consultation with foreign counterparts and the development of consistent standards across jurisdictions with respect to OTC derivatives regulation could help to promote convergence among IOSCO members’ and other regulatory bodies’ regulations, reduce the potential for conflicts of law or regulatory arbitrage, and mitigate systemic risk.”

The task force’s purpose is to seek to develop consistent international standards related to OTC derivatives regulation in the areas of clearing, trading, trade data collection and reporting, and the oversight of certain market participants; and to serve as a centralized group within IOSCO through which IOSCO members can consult and coordinate generally on issues relating to OTC derivatives regulation.

It will also coordinate other international initiatives relating to OTC derivatives regulation, including addressing the recommendations of the FSB’s Working Group for additional analysis of exchange and electronic platform trading, as well as data reporting and aggregation requirements, for OTC derivatives.

The task force will produce reports on exchange and electronic trading by the end of January 2011; on data reporting and aggregation requirements by July next year; and on international standards by January 2012. The latter will build on the earlier reports and will set out consistent international standards for OTC derivatives regulation in the areas of trading, data reporting, clearing, and the oversight of swap dealers and other market participants and, to the extent desirable and feasible, exchange and electronic trading.

It will also serve as a forum for broad-based consultation and coordination among the securities and futures regulators with responsibility for implementing rules and standards in their respective jurisdictions applicable to the OTC derivatives markets.

The task force will be led by the US Securities and Exchange Commission, the US Commodity Futures Trading Commission, the UK Financial Services Authority and the Securities and Exchange Board of India. In view of their legislative and regulatory roles, the Committee of European Securities Regulators/European Securities Markets Authority, the EC, the CPSS, and the OTC Derivatives Supervisors Group have been invited to appoint observers.

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