By Huw Jones
BRUSSELS, June 6 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
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
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.