The private sector infrastructure necessary to trade, clear and record over-the-counter (OTC) derivative transactions is now ready but regulatory uncertainty is blocking everyone from using these new exchanges, according to the Financial Stability Board (FSB).
The FSB’s fourth progress report on reforming OTC derivatives, which triggered fears of contagion during the global financial crises, showed that the United States, the European Union, Hong Kong and Japan have made further progress in meeting the goal of trading and clearing through central counter parties by end-2012.
But agreeing on cross-border rules is lacking and the FSB urged regulators worldwide to identify and develop options to tackle the shortcomings to help meet the end-2012 commitment to central clearing.
The financial crises revealed that OTC derivatives had contributed to the build-up of systemic risk and the global nature of these markets – where buyers and sellers are frequently located in different jurisdictions – makes globally consistent regulation essential.
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