(Reuters) - Global regulators said on Wednesday they will issue proposals in coming weeks on rules to encourage banks to put derivative trades through a central clearing house, but they won't be ready for the G20 summit in June.
The move is part of a huge regulatory overhaul aimed at cutting risk in the $700 trillion derivatives industry. A disorderly unraveling of derivative trades contributed to the global credit crunch in 2008 and 2009.
The Financial Stability Board (FSB), the regulatory task force for the Group of 20 leading economies (G20), also said following a meeting in Hong Kong that financial market risks had increased, a reference to the impact of the euro zone debt crisis.
"Against this background, risks of adverse spillovers to global financial markets and economies have increased," it said in a statement.
The FSB said it will issue a consultation paper on setting globally agreed margin rules for trades that are cleared directly between two parties rather than through a central clearing house.
"Momentum on OTC derivatives has accelerated in recent months," FSB Chairman Mark Carney said at a news conference in Hong Kong.
The FSB is expected to push for a minimum margin that banks must post on derivatives trades that aren't processed through a central clearing house.
The aim is to provide an incentive for trades to be centrally cleared, or at least ensure there is a lower risk of an uncleared trade running into difficulties.
Central clearing houses are backed by a fund so that a trade can still be completed if one of the parties goes bust. Currently, margin requirements on non-centrally cleared trades are agreed between parties to the deal, with little regulatory interference.
Carney, who is also the Bank of Canada governor, said their proposals on margins will not be ready in time to make formal recommendations to the G20 leaders when they meet in Mexico next month.
In 2009, the G20 set a deadline for rules on central clearing of derivatives to be in place by the end of 2012.
Carney said this is an "ambitious deadline" but the FSB is committed to moving forward as fast as possible. On current concerns about vulnerabilities in the financial system, the FSB said the adverse "feedback loop" between strains in the European sovereign debt markets, weak economic growth and fragile banking systems had intensified.
"The FSB supports the work of European and national authorities to lower short-term risks and foster lasting confidence and stability, including completing the repair and restructuring of some banks as required," it concluded in its statement.
Carney also said the FSB plans to issue a list of insurers that are of systemic importance to the global financial system next year.
This follows on from rules the group set for the world's biggest banks last year, which forced them to hold more capital than their smaller counterparts. A consultation paper on how to assess whether an insurer is systemically important or not is expected to be released ahead of the June G20 summit.
reuters.com
The move is part of a huge regulatory overhaul aimed at cutting risk in the $700 trillion derivatives industry. A disorderly unraveling of derivative trades contributed to the global credit crunch in 2008 and 2009.
The Financial Stability Board (FSB), the regulatory task force for the Group of 20 leading economies (G20), also said following a meeting in Hong Kong that financial market risks had increased, a reference to the impact of the euro zone debt crisis.
"Against this background, risks of adverse spillovers to global financial markets and economies have increased," it said in a statement.
The FSB said it will issue a consultation paper on setting globally agreed margin rules for trades that are cleared directly between two parties rather than through a central clearing house.
"Momentum on OTC derivatives has accelerated in recent months," FSB Chairman Mark Carney said at a news conference in Hong Kong.
The FSB is expected to push for a minimum margin that banks must post on derivatives trades that aren't processed through a central clearing house.
The aim is to provide an incentive for trades to be centrally cleared, or at least ensure there is a lower risk of an uncleared trade running into difficulties.
Central clearing houses are backed by a fund so that a trade can still be completed if one of the parties goes bust. Currently, margin requirements on non-centrally cleared trades are agreed between parties to the deal, with little regulatory interference.
Carney, who is also the Bank of Canada governor, said their proposals on margins will not be ready in time to make formal recommendations to the G20 leaders when they meet in Mexico next month.
In 2009, the G20 set a deadline for rules on central clearing of derivatives to be in place by the end of 2012.
Carney said this is an "ambitious deadline" but the FSB is committed to moving forward as fast as possible. On current concerns about vulnerabilities in the financial system, the FSB said the adverse "feedback loop" between strains in the European sovereign debt markets, weak economic growth and fragile banking systems had intensified.
"The FSB supports the work of European and national authorities to lower short-term risks and foster lasting confidence and stability, including completing the repair and restructuring of some banks as required," it concluded in its statement.
Carney also said the FSB plans to issue a list of insurers that are of systemic importance to the global financial system next year.
This follows on from rules the group set for the world's biggest banks last year, which forced them to hold more capital than their smaller counterparts. A consultation paper on how to assess whether an insurer is systemically important or not is expected to be released ahead of the June G20 summit.
reuters.com
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