FSB Report Examines Implementation of OTC Derivative Reforms
FSB published annual progress report on implementation of the agreed G20 reforms for over-the-counter (OTC) derivatives markets. The report shows limited progress in implementation of OTC derivatives reforms across FSB member jurisdictions since the last progress report, which was published at the end of November 2018. Some progress, focused mainly on the scope of the requirements, took place in jurisdictions where requirements were already in force.
The following are the key highlights of the progress report:
- Trade reporting—The report highlights that 23 out of 24 member jurisdictions have comprehensive requirements in force, representing an increase of one during the recent reporting period. Unless otherwise stated, the “reporting period” referred to in this report is the period from end-November 2018 until end-September 2019. .Jurisdictions report efforts to reduce reporting barriers and mask relief, wider use of the legal entity identifier in trade reporting, and streamlined reporting processes and trade repository operations. Authorities are increasingly aggregating data from multiple trade repositories, supported by ad hoc infrastructure for automated data processing. Work continues at international and national levels to address key challenges in reporting data to, and accessing data from, trade repositories, including international work on data harmonization and efforts to improve the interpretation of the reporting rules.
- Central clearing—The report notes that 18 jurisdictions have in force comprehensive standards/criteria for determining when standardized OTC derivatives should be centrally cleared. In a few of these 18 jurisdictions, a wider range of products is now subject to mandatory clearing. Central counterparties (CCPs) have been active, with some CCPs filing for authorization to clear transactions involving new asset classes in a number of jurisdictions and other CCPs withdrawing from certain market segments. Work is ongoing in international workstreams on enhancing CCP resilience and on certain aspects of CCP resolution.
- Margin requirements—Sixteen jurisdictions have in force comprehensive margin requirements for non-centrally cleared derivatives, which represents an increase of one during the reporting period. Estimates of collateralization rates are available in 10 of these 16 jurisdictions and continue to increase, particularly in credit and equity derivatives.
- Higher capital requirements for non-centrally cleared derivatives—Interim higher capital requirements for non-centrally cleared derivatives are in force in 23 of the 24 FSB member jurisdictions and this has remained unchanged for the last two progress reports. Only seven jurisdictions (albeit four more than at the end of November 2018) have implemented standardized approach for counterparty credit risk (SA-CCR) and capital requirements for bank exposures to CCPs, both due to have been implemented by January 2017.
- Platform trading—Comprehensive platform trading requirements are in force in 13 jurisdictions, a number which has remained unchanged during the reporting period. In these jurisdictions, limited progress occurred during the reporting period in the scope of products subject to a trading obligation and in the scope of requirements for trading venues.
- Cross-border coordination and issues—One jurisdiction started exercising deference during the reporting period with regard to foreign jurisdictions’ regimes. Several other jurisdictions that already exercised deference in the past extended such exercise to further jurisdictions. New international work that has been launched during the reporting period may help with further progress in this area.
Keywords: International, Banking, Securities, OTC Derivatives, Central Clearing, Regulatory Reforms, Margin Requirements, CCPs, SA-CCR, FSB
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