Review of OTC derivatives market reform: Effectiveness and broader effects of the reforms
This report provides an assessment of the implementation of the G20 reforms to over-the-counter derivatives markets , the effectiveness of the reforms in meeting the original objectives set by G20 Leaders, and the broader effects of the reforms. The review finds that:
- Implementation of the reforms is now well progressed, although this is still ongoing and has taken longer than originally intended due to the scale and complexity of the reforms. Implementation is most advanced in the largest OTC derivatives markets. Further effort will be required to finish the job.
- Meaningful progress has been made toward mitigating systemic risk. Specifically, central clearing (which has increased markedly in interest rate derivatives and, to a lesser extent, credit default swaps) is simplifying much of the previously complex and opaque web of derivatives exposures, and the central counterparties supporting that clearing are more resilient. In addition, more collateral is in place to reduce counterparty credit risks within the system.
- Progress has also been made in improving transparency, with a number of authorities using data from trade repositories (TRs), including to better monitor risk. To the extent implemented, platform trading has also improved transparency to market participants. However, significant challenges remain and it is important to complete work quickly to improve the quality of, and ability to aggregate, TR data including by removing legal barriers to the full reporting and sharing of such data.
- Further study should be made on the effects of the reforms in protecting against market abuse. There is little evidence on this at present, although some authorities report using TR data for market surveillance purposes.
- A range of views have been expressed on the impact of market reforms on spreads and liquidity in OTC derivatives markets. There is some evidence that the reforms have improved liquidity in some OTC derivatives markets, although some authorities have concerns that the interaction of the broader set of post-crisis reforms may have contributed to a reduction in the depth of liquidity.
The FSB, working with the standard-setters, will use its post-implementation evaluation framework to assess the interaction of the reforms on incentives to centrally clear and will publish the results of this work in late 2018.