The Futures and Options Association (FOA) supports the general approach in the combined FSA and HM Treasury response to the European Commission’s consultation on enhancing the resilience of OTC derivatives markets.
In essence, the response prioritises the need to strengthen supervision and safeguard stability, but recognises the need to avoid damaging the ability of the OTC markets to fulfil their risk-management capability. It strongly supports the call for higher standards in risk management, but notes that any new prudential requirements must be properly risk-based and not punitive. It supports the greater use of CCP clearing arrangements for OTC products, which are clearing-eligible, but emphasises the key importance of sustaining product diversity and flexibility and contract design to enable users to manage their risks.
Since the release of the European Commissions consultation on OTC market regulation in July this year, there have been 111 responses. Now that the consultation window has closed, the discussion will continue at a conference in Brussels tomorrow (25th September). Throughout this process, the FSA has been working alongside other regulatory committees as it looks toward to implementing the necessary changes to the financial sector.
FSA Chief Executive, Hector Sants, said: “The global crisis has underlined how intertwined financial markets and institutions are and regulators around the world have to work together to ensure appropriate oversight. We are all working alongside other international regulatory committees to drive forward global financial reforms, particularly in areas of joint interest and in identifying potential regulatory gaps.
The FOA has supported the drive to establish safer markets and require comprehensive trade reporting of all OTC transactions to the regulatory authorities, but has emphasised that the essential delivery of a safer financial system must not be at the cost of undermining market competitiveness or functionality.
Anthony Belchambers, Chief Executive of the FOA, said Good regulation is about accommodating diversity, not suppressing it. The FSA response to the Commissions Communication quite rightly prioritises the need for stricter and closer oversight of the OTC markets. Much will turn upon the detail, but it does recognise the growing calls from the buy-side to avoid impairing the capacity of markets to facilitate risk management or, through punitive regulation, exacerbating its cost to the point where it becomes uneconomic.