21 February 2011

IOSCO identifies benefits of organised platform derivatives trading

The Technical Committee of the International Organisation of Securities Commissions (IOSCO) has published a Report on Trading of OTC Derivatives. The Report was prepared by the Technical Committee’s Task Force on OTC Derivatives Regulation (Task Force), in response to a request from the Financial Stability Board to examine increasing exchange and electronic trading of OTC derivative products in response to the G-20 Leaders’ commitments on this issue and their stated objectives of improving transparency, mitigating systemic risk and protecting against market abuse in the derivatives markets.

The Report concludes that it is appropriate to trade standardised derivatives contracts with a suitable degree of liquidity on organised platforms, and that a flexible approach to defining what constitutes an organised platform for derivatives trading would maximise the number of standardised derivative products that can be appropriately traded on these venues. It identifies characteristics that an organised platform should exhibit in order to fulfil the G-20 Leaders’ objectives, as well as the benefits and costs associated with transitioning trading of derivatives from OTC venues onto organised platforms. It also presents a range of actions that regulators may choose to take to increase organised platform trading of OTC derivatives products.

Hans Hoogervorst, Chairman of IOSCO’s Technical Committee, said: “IOSCO believes that it is appropriate to trade standardised derivatives contracts with a suitable degree of liquidity on organised platforms, provided that a flexible approach encompassing a range of entities that would qualify as such platforms is taken by regulators. This report provides regulators, regardless of the state of development of their derivatives markets, with an analytical tool that can inform their current and future efforts at addressing the trading of derivatives on organised platforms, and a range of actions which they can take to facilitate this.“

“The Task Force has identified a number of benefits that will result from a move to organised platforms, including greater competition, increased participation, better transparency and improved market oversight. All of these will contribute to the realisation of the G20 Leaders’ objectives, as well as benefiting market participants and regulatory authorities.“

“Finally, while there is debate amongst regulators regarding the characteristics that an entity should exhibit to qualify as an eligible organised platform, the overriding principle that regulators must observe is that they need to coordinate their efforts in facilitating the transition of OTC derivatives trading to organised platform trading, to ensure that the objectives of the G20 are achieved, and not undermined.”

Press release

Full report

© IOSCO