* Sector reform stalls as regulatory clarity missing
* FSB tells supervisors to speed up work on meshing rules
* G20 ministers to discuss progress at weekend meeting
By Huw Jones
LONDON, Oct 31 Regulators have been told to work
faster to iron out cross-border spats over new rules to reduce
risks in the $650 trillion derivatives market as progress stalls
ahead of a December deadline.
The vast market has traditionally been opaque, with
contracts traded between big banks like Goldman Sachs, Deutsche
Bank and HSBC. The reforms will alter the sector's economics and
business models while raising costs for customers.
The Group of 20 economies (G20) agreed in 2009 during the
financial crisis that derivatives like interest rate swaps and
credit default swaps should be traded on electronic platforms,
centrally cleared and recorded, by the end of 2012.
The changes will allow regulators to spot risks and identify
who is behind each transaction faster and avoid the confusion
seen when U.S. insurer AIG hit the rocks in 2008 and
needed a $182 billion bailout.
The Financial Stability Board (FSB), the G20's regulatory
arm, said in a report for a G20 finance ministers' meeting in
Mexico this weekend the industry was being held back by
uncertainty over how new rules will mesh together globally.
"Market infrastructure is in place and can be scaled up.
Regulatory uncertainty remains the most significant impediment
to further progress and to comprehensive use of market
infrastructure," the report said.
Progress in clearing and reporting trades has "plateaued" in
the past two years as the sector awaits clarity on how national
rules will work seamlessly amid so much cross-border trading.
"However, progress to date in cross-border discussions has
been slow. This risks delaying the full and timely
implementation of the G20 objectives," the FSB said.
The bulk of derivatives are traded through New York and
London while users are spread across the world.
Finance ministers from Britain, France and Japan asked the
U.S. Commodity Futures Trading Commission this month to curb the
cross-border reach of its new derivatives rules amid signs that
the global derivatives market was already fragmenting.
Some market participants are choosing non U.S. banks to
avoid the cost and red tape of having to comply with American
and their own domestic rules.
The FSB said 10 percent of outstanding credit default swaps
- a type of insurance against the default of a company or
country - were being centrally cleared by the end of August.
The figure for interest rate swaps, which insure against
adverse changes in borrowing costs, was nearer 40 percent.
Clearing ensures a transaction is completed, irrespective of
whether one side of the trade goes bust, and the FSB said by
June clearing houses were available for some products in the
five asset classes the reforms target.
So far, details on well over 90 percent of off-exchange
traded interest rate swaps and credit default swaps were being
recorded at a trade repository, the FSB said.
But industry officials say rules on how much extra capital
they will need to back transactions have yet to be finalised, a
key piece in the jigsaw that will determine whether they will
continue to trade some contracts at all.