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IOSCO Publishes Final Report on Risk Mitigation Standards for Non-Centrally Cleared OTC Derivatives 

January 29, 2015

FTSE Global Markets

The International Organisation of Securities Commissions today published the final report Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives, which sets out nine standards aimed at mitigating the risks in the non-centrally cleared OTC derivatives markets.

The global financial crisis highlighted how the inter-connectedness across financial institutions engaged in trading OTC derivatives led to contagion and heightened systemic risk. One of the key components of the G20 reform programme has been to encourage the central clearing of standardised OTC derivatives. However, a substantial proportion of OTC derivatives are not standardised and hence not suitable for central clearing. To reduce counterparty credit risk and limit contagion, IOSCO and the Basel Committee on Banking Supervision (BCBS) had in 2013 published a framework which establishes minimum standards on margin requirements for non-centrally cleared OTC derivatives.

The non-centrally cleared OTC derivatives market has traditionally been characterised by privately negotiated transactions entered into by two counterparties. Trading relationship documentation may help to reduce the legal and other risks that can result from undocumented non-centrally cleared OTC derivatives transactions or undocumented material terms of non-centrally cleared OTC derivatives transactions. Some form of trading relationship documentation has been used by the majority of derivatives market participants for many years. 

Read More: FTSE Global Markets 

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