In the Key of OTC

ISDA Chief Executive Officer Scott O'Malia offers informal comments on important OTC derivatives issues in derivatiViews, reflecting ISDA's long-held commitment to making the market safer and more efficient.

The process of regulatory reform in the US and in Europe can sometimes seem discordant. Multiple regulators, ministries, politicians and policymakers produce a cacophony of proposals, counter-proposals, bills, statutes, directives, regulations and rules. Still, no matter the static, we have, at this point, the structure of Dodd-Frank in the US and the developing structure of EMIR and MiFID in Europe to provide some tonality, if not harmony, on approaches to regulation.

If the final movement is approaching in the US and Europe, where are we in the development of OTC derivatives regulation in other jurisdictions, particularly in the Asia-Pacific region? Without a single government or common market, is there any hope that regulation across the region will be in the same key, even if everyone plays a slightly different tune?

We won’t know the full answers for awhile, but in the meantime we will make every effort to broadcast information to the membership as regulations are composed across the region. To that end, we have just published our Asia-Pacific Regulatory Profiles, which serves as a handbook to regulatory developments affecting OTC derivatives in key jurisdictions throughout the region.

This new publication provides information on key regulators, on important recent and upcoming milestones and lists ISDA submissions on regulations in 10 markets. Some jurisdictions are part of the G20 and are striving to make good on the September 2009 commitments on clearing, execution and transparency. Others, though not bound by those goals, are nevertheless looking to emulate them. Yet another group may be driven more by domestic considerations and other public policy goals.

One issue that our Asia-Pacific report highlights is the approach in each of the countries to utilizing CCPs and trade repositories. Many jurisdictions are pursuing local solutions for their domestic markets and trades in their currencies. We have written about this previously in derivatiViews, where we highlighted the potential for proliferation of these key elements of market infrastructure and the possible detrimental effect of that proliferation on reducing systemic risk. We continue to raise this concern with regulators throughout the region.

Our staff in APAC remains active on these issues in both the established as well as developing markets. We will be making a stop later this month in Singapore where we will meet with members and regulators. Singapore has just announced that it is conducting a review on the regulatory oversight of OTC derivatives and is seeking public comment. After Singapore we will then travel to Hanoi, which we have visited once before, to hold a session on OTC derivatives with the Vietnamese central bank and other regulators. And in jurisdictions like Hong Kong, China, India, Korea and elsewhere, we have an established cycle of visits and working group meetings.

Wherever we travel in the region or, for that matter, around the world, our tune will be one of pursuing regulatory reform that is driven by the need to develop safer, more efficient markets. Anything else is just noise.

Remove Bureaucracy from Cross-margin Approvals

Cross-margining programs play a critical role in financial markets. By ensuring margin requirements more closely reflect the actual risk of a portfolio of products, they reduce liquidity strain and improve market efficiency, both of which will become even more important...

Joint Response on CCP Resolution

On September 7, ISDA and FIA responded to a Bank of England (BOE) discussion paper on central counterparty (CCP) resolution. The associations support greater clarity on valuation capabilities prior to a crisis scenario and the boundary between recovery and resolution,...