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).
The FSB published in October 2019 its fifth 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 has been made to date across the G20’s OTC derivatives reform agenda, though progress since 2018 has been limited (Graph 3).
Implementation is most advanced for trade reporting. Comprehensive1 trade reporting requirements have been implemented in 23 jurisdictions (one more than in 2018).
Comprehensive central clearing frameworks have been implemented in 18 jurisdictions; platform trading frameworks in 13 jurisdictions; and margin requirements for non-centrally cleared derivatives (NCCDs) in 16 jurisdictions (all of these are unchanged since 2018).2 Final capital requirements for NCCDs are implemented in seven jurisdictions.
- Some progress took place since last year in jurisdictions where requirements were already in force, for example in expanding the scope of products subject to mandatory clearing or to be executed on organised trading platforms.
The availability and use of trade repositories (TRs) and CCPs remains stable.
There were 34 TRs (or similar infrastructures) authorised in FSB jurisdictions as of September 2019, 10 of which were authorised in multiple jurisdictions.3 Trade reporting requirements are most prevalent for interest rate and foreign exchange derivatives.
Over the past year, CCPs were recognised to provide clearing services in two jurisdictions, and there has been continued broadening of the asset class offerings of existing CCPs.
Progress continues on cross-border cooperation and coordination aspects such as deference. One jurisdiction started exercising deference with regard to foreign jurisdictions’ regimes, while several others extended deference to further jurisdictions.
Central clearing of OTC derivatives products has increased over time, though it has plateaued over the past year (Graph 10).
Work is ongoing at the international level to make trade reporting truly effective.
Notwithstanding implementation progress, challenges to the effectiveness of trade reporting remain. These include a lack of globally harmonised data reported to TRs and data quality issues as well as challenges accessing TR data.
Jurisdictions report efforts to reduce reporting barriers and masking relief (as recommended by the FSB’s 2018 follow-up report on trade reporting legal barriers),4 wider use of the Legal Entity Identifier (LEI) in trade reporting, streamlining reporting processes and TR operations, and taking steps to facilitate access to TR data.
- 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.5
Status of implementation
For further information, see the latest FSB progress reports on implementation of OTC derivatives market reforms (as of October 2019) and on removal of legal barriers to trade reporting (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 sub-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: 2019 Progress Report on Implementation (October 2019).↩
2 The BCBS and IOSCO extended in July 2019 the final implementation phase of margin requirements by one year to support smooth and orderly implementation across jurisdictions.↩
3 The EU is counted as one FSB member jurisdiction for this purpose.↩
4 See the FSB report on Trade reporting legal barriers: Follow-up of 2015 peer review recommendations (November 2018).↩
5 The joint Committee on Payments and Market Infrastructures (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 (CDE) other than the UTI and UPI in April 2018. The FSB has recommended implementation of the UTI in all FSB jurisdictions by end-2020 and of the UPI by 2022Q3. CPMI-IOSCO has also recommended implementation of the CDE by 2022Q3. Governance arrangements for the maintenance, oversight and global implementation of these OTC derivatives data elements have been agreed.↩