REFILE-Global regulators agree minimum derivatives rules

Wed Jun 6, 2012 12:20pm EDT

By Huw Jones

BRUSSELS, June 6 (Reuters) - Global regulators agreed on minimum rules on Wednesday to shed light on the $700 trillion derivatives market, after being hamstrung by a dearth of information in the credit crunch, and to deter firms from moving trades to less regulated countries.

Leaders of the world's top 20 economies (G20) agreed three years ago that from the end of 2012 derivatives trades should be recorded and centrally cleared and executed on electronic platforms.

They aimed to improve regulation after little-understood, lightly regulated derivatives products helped bring down U.S. bank Lehman Brothers in 2008, triggering a global market meltdown, and led to the costly bailout of insurer AIG.

The International Organisation of Securities Commissions (IOSCO), a Madrid-based umbrella body for over 100 national market regulators including the U.S. Securities and Exchange Commission, published its final minimum standards for the sector.

They aim to crack down on market participants wherever they are in the world, not just in the European Union or United States where tougher rules are already being adopted.

Such global minimum standards will help deter dealers from trying to shift business to areas such as Switzerland or countries in Asia in the hope of escaping the tough EU and U.S. derivatives rules that are being introduced from January.

"Historically, market participants in the OTC derivatives market have, in many cases, not been subject to the same level of regulation as participants in the traditional securities market," IOSCO said in its report.

"This lack of sufficient regulation allowed certain participants to operate in a manner that created risks to the global economy that manifested during the financial crisis of 2008," IOSCO added.

The final rules contain 15 recommendations that IOSCO member countries of IOSCO are obliged to enforce:

- they apply to derivative market intermediaries, meaning market makers and dealers and not end users;

- dealers should be subject to registration or licensing;

- market authorities should consider imposing capital requirements on dealers to reflect the risks they pose;

- dealers should be subject to business conduct standards;

- dealers should keep collateral on cleared trades belonging to customers separate from their own assets;

- dealers should have in place procedures to facilitate the rapid transfer of cleared client positions and collateral;

- dealers should have plans spelling out how they will continue their businesses during disruptions or disasters;

- dealers must keep records of their transactions.