Chosen Time

If this year has been characterised by banker bashing and politically motivated policy proposals, we can only hope that 2010 is marked by a more sombre attempt to sensibly close the gaps exposed by the credit crisis. Next year should see the fruits of this years heated discussions, seminars and conferences around financial system reform with the drafting of long-awaited legislation. For example, it is expected that legislation related to the reporting of OTC transactions to a repository will be incorporated in the European Market Infrastructure Directive tabled for July 2010, with implementation due in 2012. On that note, transparency is going to be the biggest theme amongst European policymakers in 2010. How can they get a better understanding of what transactions are taking place in the financial markets? In 2009, clearing houses have been mooted as the panacea for mitigating risk and creating transparency in financial system. While they go a long way to reducing counterparty risk for their members, there are large sections of the financial community that clearing houses do not protect and while they hold large amounts of data, this is all aggregated and therefore does not necessarily provide the transparency that policymakers are looking for. Such shortcomings will become apparent in 2010, causing policymakers to look for other solutions to provide the transparency they so crave. Trade repositories may well provide that clarity. That said, if policymakers want to ensure that trade repositories serve market purpose they must define technical specifications which market infrastructure providers can build to. For example, there is industry debate currently on whether repositories should be constructed around asset class, geography or market segment. This discussion needs to reach resolution before any meaningful market solution can be provided. And of course, policymakers shouldnt forget that there are existing post trade infrastructures already in the marketplace that could provide the transparency they seek. Omgeo for one, possesses a wealth of data on buy-side transaction volume in cash equity and fixed income markets. The principle of increasing the robustness of post-trade infrastructure has been the one big area of consensus amongst policymakers in 2009. This, I expect will continue to be a dominant theme in 2010. To ensure that the maximum benefit is derived from such initiatives, it is crucial that policymakers and infrastructure providers work hand in hand to leverage existing market solutions and to ensure that the new ones comply to an agreed set of standards. Only then can the market begin to heal itself.

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