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The International Organization of Securities Commissions (IOSCO) has introduced an information repository for central clearing requirements of over-the-counter (OTC) derivatives. IOSCO is the global policy forum for securities regulators.
Central clearing of trades involves the introduction of a central counterparty (CCP) between the buyer and the seller of OTC derivatives (which was earlier absent).
The CCP acts as a buyer to a seller and a seller to a buyer and guarantees settlement of trades.
The initiative is the result of the September 2009, G-20 summit at Pittsburgh which had called for reforms in OTC derivatives markets. India is a member of the G-20 nations.
The G-20 had agreed that “all standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest. OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements.”
This was done to address the major weaknesses that triggered the 2008 global financial meltdown - weaknesses in OTC markets arising out of the build-up of large counterparty exposures between particular market participants which were not appropriately risk-managed; contagion risk arising from the inter-connectedness of OTC derivatives market participants and limited transparency of overall credit risk exposures that precipitated a loss of confidence and market liquidity in time of stress.
FOR RULE MAKING
This repository provides consolidated information on the clearing requirements of different countries (jurisdictions) to regulators and market participants.
The objective of this repository is to assist rule making by securities regulators worldwide and enable compliance by participants in the OTC derivatives market, said an IOSCO statement.
The information in the repository would be updated on a quarterly basis and contains central clearing requirements on a product-by-product level including exemptions.
The repository was established in February 2014 but was available until now only to IOSCO members. The information is now open to the public.
IOSCO had released a report on requirements for mandatory clearing in February 2012, to ensure that all standardised OTC derivatives contracts were cleared through central counterparties by end-2012.
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