Uncleared Derivatives To Be Regulated?
Why Read: Because this report may prove to be of great significance over the next few months.
Featured Article: An article this morning reports that the Financial Stability Board ('FSB) plans to issue proposals on rules encouraging banks to put derivatives trades through a central clearing house as part of a regulations aimed at reducing risk in what is described in the article as the $700 trillion derivatives industry. The article goes on to say:
"a disorderly unraveling of derivatives trades contributed to the global credit crunch in 2008 and 2009";
"financial market risks had increased, a reference to the impact of the euro zone debt crisis'; and,
According to Mark Carney, Governor of the Bank of Canada and current Chair of the FSB, "Momentum on OTC derivatives has accelerated in recent months".
Note: The FSB, comprised largely of (over 20) Central Banks, coordinates the work of national financial authorities and international standard setting groups, and develops and promotes the implementation of regulatory, supervisory and other financial sector policies. Centered in Basel, Switzerland, currently it is chaired by Mark Carney, current Governor of the Bank of Canada.
Commentary: How this develops is something to watch for. This is because:
the world derivatives markets currently are estimated by some to be far larger than U.S.$700 trillion - although 'even' U.S.$700 trillion is almost 10 times the size of the entire estimated 2011 World Gross Domestic Product (estimated at just under U.S.$75 trillion);
the 'push-back' by the bank's on this move toward regulation will be important to observe. Simply put, the greater the push-back by the banks, the more concern their ought to be on the part of world investors, traders, and everyone else in the world population. Unregulated groups are always 'anti-regulation' for a reason, and who knows what a regulatory environment would uncover in the context of world derivatives trading; and,
derivatives can hardly be termed an 'industry'. It is simply but one leg in the multi-legged banking and financial services industry.
regulators plan margin rules soon for uncleared derivatives
Source: Reuters, May 30, 2012
Reading time: 4 minutes