"The collaborative process that underpins this strategic plan will be central to continued risk reduction in the OTC derivatives markets and supports firms’ transition to the emerging regulatory environment in a timely and prudent manner," said William C. Dudley, president of the Federal Reserve Bank of New York.
The industry roadmap outlines four broad objectives that are aligned with the G-20 Leaders' Statement of September 2009 and supportive of global regulatory reform: 1) increasing standardization; 2) expanding central clearing to a wider range of market participants; 3) enhancing bilateral risk management; and 4) increasing transparency. The initiatives and commitments supporting these objectives are designed to support the collective efforts of market participants to meet regulatory requirements in multiple jurisdictions.
Signatories to the letter have agreed to participate in a series of focused discussions with supervisors to resolve issues preventing viable central clearing options for clients (client clearing). To ensure that these discussions result in timely and material progress, the supervisors will establish a working group to develop appropriate milestones for resolution of the issues to achieve client clearing. The working group organized by the supervisors will have balanced representation from the sell-side, buy-side and central counterparties.
"The industry did not meet their prior commitment to provide a viable clearing solution for clients. For this reason, a working group, coordinated by supervisors and involving a balanced representation of stakeholders, will work through these issues to their resolution," said Mr. Dudley.
The New York Fed will continue to work with domestic and international supervisors to monitor market participants’ efforts in implementing this roadmap and encourage further efforts to improve the functioning of OTC derivatives markets in support of global financial stability.
About the OTC Derivatives Supervisors Group (ODSG)
The ODSG originated in 2005, when the New York Fed hosted a meeting with representatives of major OTC derivatives market participants and their domestic and international supervisors, in order to address the emerging risks of inadequate infrastructure for the rapidly growing market in credit derivatives. The group is chaired by the New York Fed and meets annually with other supervisors and signatories to a series of "commitment letters". Commitments made by signatories signify their collective agreement to work with other signatories and their counterparties (whether signatories or not) to deliver structural improvements to the OTC derivatives market in the interest of financial stability.
Members of the ODSG currently include the Board of Governors of the Federal Reserve System, Commodity Futures Trading Commission, Connecticut State Banking Department, Federal Deposit Insurance Corporation, Federal Reserve Bank of New York, Federal Reserve Bank of Richmond, French Prudential Supervisory Authority (Autorité de Contrôle Prudentiel - ACP), German Federal Financial Supervisory Authority, Japan Financial Services Agency, New York State Banking Department, Office of the Comptroller of the Currency, Securities and Exchange Commission, Swiss Financial Market Supervisory Authority and United Kingdom Financial Services Authority.