In a letter to global financial regulators, the worlds biggest banks have pledged to increase their usage of central counterparties (CCP) for over-the-counter derivatives (OTC).
Calling themselves the G15, the banks have committed to submitting 90% of new interest rate derivative trades (calculated on a notional basis) to central clearing from December 2009. This rate increases to 95% for credit default swaps.
Further collaboration with with eligible CCPs and regulators was also promised in the letter, coming after concerted pressure from U.S. and EU regulators and politicians regarding the clearing and execution of OTC derivatives.
The letter to the regulators, published on Tuesday by the New York Federal Reserve website, included the caveat that the G15 promise to increase their use of CCPs is necessarily dependent on several factors, including ensuring proper risk management, CCP capabilities and business choices, regulatory treatment and decisions of non-G15 firms. The G15 stated that they were committed to work actively with our supervisors and other regulators to remove any of these impediments to our efforts.
The G15 is made up of the Bank of America-Merrill Lynch, Barclays Capital, BNP Paribas, Citigroup, Commerzbank AG, Credit Suisse, Deutsche Bank AG, Goldman, Sachs & Co., HSBC Group, International Swaps and Derivatives Association, Inc., JP Morgan Chase, Morgan Stanley, The Royal Bank of Scotland Group, Socit Gnrale, UBS AG and Wachovia Bank, N.A.
Bank of America, Citigroup, Goldman Sachs and JPMorgan control over 90% of the U.S derivatives market.
The letter can be found here .
Giles TurnerNews Editor