The Federal Reserve Bank of New York hosted a meeting of major market participants and their domestic and international supervisors to review the industry’s strategy for addressing weaknesses in the operational infrastructure of the over-the-counter (OTC) derivatives market. The 9 June meeting was the fourth with major dealers on this topic and the first to include buy-side clients and industry associations.
Starting in September 2005, industry participants implemented a number of initiatives to improve the operational performance and infrastructure of the OTC derivatives market. Through these initiatives, market participants have significantly expanded automation, with 91% of credit derivatives trades being confirmed on electronic platforms, and reduced the number of credit derivatives confirmations outstanding more than 30 days by 86%.
Market participants and regulators agreed on the following agenda for bringing about further improvements in the OTC derivatives market infrastructure:
* further increasing standardization and automation of credit derivatives trade processing with the objective of moving towards matching on T+0,* developing a central counterparty for credit default swaps that, with a robust risk management regime, can help reduce systemic risk,* promoting greater certainty in credit event management by incorporating an auction based settlement mechanism into standard credit derivatives documentation,* reducing the volume of outstanding credit derivatives trades via multilateral trade terminations to help reduce operational risk, and* extending infrastructure improvements to OTC equity, interest rate, foreign exchange, and commodity derivatives as guided by the March 2008 policy statement by the Presidents Working Group on Financial Markets.
Market participants reaffirmed their commitment to the objectives laid out in their 27 March 2008 letter to regulators. They also agreed to detail their next steps for addressing these priorities to regulators by 31 July.
These efforts will continue to be encouraged and supported by the primary supervisors of major participants in these markets.
Those is attendance at the meeting:Dealers:
Bank of America, N.A., Barclays Capital, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank AG, Dresdner Kleinwort, Goldman, Sachs & Co., HSBC Group, JPMorgan Chase, Lehman Brothers, Merrill Lynch & Co., Morgan Stanley, The Royal Bank of Scotland Group, Societe Generale, UBS AG, Wachovia Bank, N.A.
Buy-Side Firms:
AllianceBernstein, BlueMountain Capital Management LLC, Citadel Investment Group, L.L.C.
Industry Groups:
Counterparty Risk Management Policy Group III, International Swaps and Derivatives Association, Inc., Managed Funds Association, Securities Industry and Financial Markets Association
Supervisors:
Commission Bancaire, Commodity Futures Trading Commission, Connecticut State Department of Banking, Federal Deposit Insurance Corporation, Federal Financial Supervisory Authority, Federal Reserve Bank of New York, Federal Reserve Bank of Richmond, Federal Reserve Board of Governors, Financial Industry Regulatory Authority, Financial Services Authority, New York State Banking Department, Public Company Accounting Oversight Board, Office of the Comptroller of the Currency, Office of Thrift Supervision, Securities Exchange Commission, Swiss Federal Banking Commission