Making Derivatives Markets Safer – Implementation
The FSB has designated over-the-counter (OTC) derivatives as one of the priority areas for implementation monitoring. Regular monitoring and detailed reporting in this area is carried out by the FSB OTC Derivatives Working Group (ODWG). Its m
The FSB published in November 2018 its fourth annual report on the implementation and effects of the G20 financial regulatory reforms. Below is an extract from the report on the status of implementation of OTC derivatives market reforms.
Overall, good progress continues to be made across the G20’s OTC derivatives reform agenda (Graph 5).
Implementation is most advanced for trade reporting and for the interim higher capital requirements for non-centrally cleared derivatives (NCCDs), although progress in implementing the final capital requirements is much less (see section 2.1). Comprehensive1 trade reporting requirements have been implemented in 22 jurisdictions;2 central clearing frameworks in 18 jurisdictions; and platform trading frameworks in 14 jurisdictions.
Comprehensive margin requirements for NCCDs have been implemented in 16 jurisdictions (two more since last year).
There has been progress since last year in adopting comprehensive standards for determining when OTC derivatives are standardised and should be required to be centrally cleared (one more jurisdiction) and subject to platform trading (two more jurisdictions).3 Furthermore, new determinations entered into force for specific derivatives products to be executed on organised trading platforms in six FSB member jurisdictions.
The availability and use of TRs and CCPs continues to expand.
Progress continues to be made in enhancing the regulatory frameworks for TRs and CCPs, including in cross-border aspects such as deference decisions in relation to CCPs, and in setting expectations for their sound design and operation consistent with the Principles for Financial Market Infrastructures (PFMI) by the Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO).
Trade reporting requirements are most prevalent for interest rate and foreign exchange derivatives transactions. There were 34 TRs (or similar infrastructures) operating in FSB jurisdictions as of September 2018, 9 of which were authorised in multiple jurisdictions.4
Over the past year, there have been new authorisations of existing CCPs in 3 jurisdictions, and continued broadening of the asset class offerings of existing CCPs. Further, a number of jurisdictions are establishing local CCPs ahead of implementing mandatory clearing.
Work is ongoing at the international level to make trade reporting truly effective.
Challenges to effective trade reporting remain, including a lack of harmonisation of data formats and data quality issues, and legal barriers to full reporting of and authorities’ access to TR data.
In all but 3 FSB jurisdictions, no further action is required to implement the FSB’s 2015 thematic review recommendations on removing or addressing barriers to full trade reporting.5 Five jurisdictions allow masking of counterparty identifiers for some transactions, but this is set to expire in two of them by end-2018 and to roll-off in the others once no longer necessary. In 7 jurisdictions, changes have been made or are underway to address or remove barriers to access to TR data by foreign authorities or non-primary domestic authorities, e.g. by providing direct access to such data under an MoU.
While TR data is beginning to be more widely used by authorities, its usefulness continues to be affected by data quality issues, including differences in the details of reporting requirements among TRs and jurisdictions that make it challenging to aggregate or compare data from different sources. International work streams have been focusing on technical implementation challenges affecting the effectiveness of trade reporting.6
Status of implementation
For further information, see the latest FSB progress reports on implementation of OTC derivatives market reforms and on removal of legal barriers to trade reporting (as of November 2018) as well as the FSB report on Review of OTC derivatives market reform: Effectiveness and broader effects of the reforms (June 2017)
1 For the purposes of this section, “comprehensive” means that the standards, criteria or requirements apply to over 90% of OTC derivatives transactions as estimated by that jurisdiction. In the case of margin requirements, “comprehensive” means that the standards, criteria or requirements in force in a jurisdiction would have to apply to over 90% of transactions covered, consistent with the BCBS–IOSCO Working Group on Margin Requirements phase in periods. See the FSB report on OTC Derivatives Markets Reforms: Thirteenth Progress Report on Implementation (November 2018).↩
2 This includes Turkey, where legal changes made trade reporting requirements effective as from 30 November 2018.↩
3 This includes India, where final guidelines for authorisation of electronic trading platforms were issued in October 2018.↩
4 The EU is counted as one FSB member jurisdiction for this purpose.↩
5 See the FSB report on Trade reporting legal barriers: Follow-up of 2015 peer review recommendations (November 2018).↩
6 The joint CPMI-IOSCO working group on harmonisation of key OTC derivatives elements issued technical guidance on the Unique Transaction Identifier (UTI) in February 2017 and on the Unique Product Identifier (UPI) in September 2017, and on critical data elements other than the UTI and UPI in April 2018. Recently CPMI-IOSCO launched a consultation on governance arrangements for critical data elements other than UTI and UPI. The FSB in late December recommended implementation of the UTI in all FSB member jurisdictions by end-2020.↩