Regulators, Derivatives Indus Sets Deadlines On Safety Measures
02 Juni 2009 - 8:00PM
Dow Jones News
Leading financial market players have reached formal agreement
with regulators on measures for safer handling of the $684 trillion
global derivatives market.
These are the most explicit commitments yet from an industry
widely accused of exacerbating the financial markets crisis.
They're laid out in a letter, alongside an official acknowledgement
from the New York Federal Reserve, posted on the central bank's Web
site Tuesday.
The letter lists a series of deadlines, including registering of
all credit derivatives trades, in either a central clearinghouse or
a trade warehouse, by July 17. All equity derivative trades will be
similarly logged by July 31, and interest-rate deals by the end of
the year.
Clearing facilities must be available to all market participants
by Dec. 15, and that service - which guarantees both sides of each
trade - is to be extended to other over-the-counter products.
Participants also agreed to work with supervisors on specific goals
to be released Aug. 31.
The dealer community pledged to starting carrying out daily
electronic synching of their portfolios by June 30. That will mean
frequent reconciliation of around 70% of all outstanding
derivatives transactions, according to the industry letter.
In a gesture toward breaking down the dominance of that dealer
community in the marketplace, the industry letter also promised
more democratic representation of buyers and sellers in trade
groups, including leading decision-making bodies such as SIFMA and
the MFA.
"We will continue to demand further improvements until our
objectives are achieved," said William Dudley, President of the
Federal Reserve Bank of New York, in the central bank's responding
release.
Signatories to the industry letter comprised 27 of the
derivatives market's most prominent participants, including all the
leading dealer banks and, on the buyside, AllianceBernstein,
Citadel Investment Group and BlueMountain Capital Management.
Copies were sent to 11 regulatory bodies, including the Office of
the Comptroller of the Currency, the Securities and Exchanges
Commission and the United Kingdom Financial Services Authority.
Missing from that list, though, were two bodies that have been
closely involved in discussions of tighter oversight for
derivatives - the Commodity and Futures Trading Commission, and the
European Central Bank.
For more information, see
http://www.newyorkfed.org/newsevents/news/markets/2009/ma090602.html
-By Emily Barrett, Dow Jones Newswires; 201-938-2248;
emily.barrett@dowjones.com