2013/08/21

How long does it take to regulate the derivatives markets ?

Selected excerpts from the recent BIS report "Authorities’ access to trade repository data":

"The recent financial crisis highlighted a severe lack of transparency in the over-the-counter derivatives markets. The lack of available data during the crisis hindered authorities in effectively carrying out their mandates. It also interfered with the assessment of risks resulting from the build-up of unsustainable exposures, which ultimately led to the collapse or near-collapse of some major financial institutions. Increased transparency may improve the stability of these markets by enhancing the ability of authorities to monitor and detect risks.

In September 2009, the G20 Leaders made a number of commitments regarding the operation of over-the-counter derivatives (OTCD) markets, including the statement that all OTCD contracts should be reported to trade repositories (TRs) in order to improve transparency, mitigate systemic risk and protect against market abuse in the OTC derivatives markets.

A significant amount of attention has been focused on addressing 21 recommendations developed by the Financial Stability Board (FSB) to implement the G20 Leaders statements with respect to OTCD markets, as set forth in its report Implementing OTC derivatives market reforms (October 2010).

In October 2011, the FSB advocated that the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO), in co-ordination with relevant authorities, take forward the work on authorities’ access to TR data.

Legislative and regulatory efforts are underway to implement in the G20 jurisdictions the commitment to report OTCD transactions to TRs.

[After several years spent to define functional requirements, the framework and guidelines outlined in the new report "Authorities’ access to trade repository data" released this month] should provide useful guidance in making and responding to such requests and the implementation of data access policies by TRs.

Addressees and scope 
The guidance set out in this report is addressed to both authorities and TRs. The report is addressed to authorities to encourage a common understanding within the official sector and facilitate mutual support of authorities’ respective access needs in support of the expectations set out by the CPSS-IOSCO PFMI; for TRs, it provides guidance on the implementation. 

This report describes the expected data access needs of authorities using a functional approach complemented by an illustrative data access mapping that aligns each function to the minimum level of access authorities would typically require in support of their mandates and responsibilities.

Limitations
It is likely that OTCD data will be held in multiple TRs, requiring some form of aggregation of data to get a comprehensive and accurate view of the OTC derivatives market and activity globally. With the current structure of TRs, no authority will be able to examine the entire global network of OTCD data at a detailed level.

In the light of this limitation, the public sector may wish to consider and further investigate the opportunity and feasibility for a centralised or other mechanism to produce and share global aggregated data, as a complement to the direct access by the different authorities to TR-held data. Outlining such an arrangement is beyond the scope of this report but will be addressed by a feasibility study mandated by the FSB on approaches to aggregate OTC derivatives data."
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I also note that no timeframe for implementing TRs is given in this report. For instance, Banque de France for the moment only draw attention of markets participants.

EU has published a regulation on this topic July 2012. You can read:

Article 91: Entry into force
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union [27 July 2012].
This Regulation shall be binding in its entirety and directly applicable in all Member States.

And during that time: