News
2009-05-14 - WMBA REACTS TO US DEPT. OF TREASURY PROPOSAL ON REGULATION OF OTC DERIVATIVES
Industry Body Warns of the Impact of Coercing OTC Products onto Exchange
The Wholesale Market Brokers Association (“WMBA”), an independent industry body representing the world’s largest Inter-Dealer Brokers,* is reviewing the proposals for the regulation of OTC derivatives announced by Treasury Secretary Tim Geithner. It wishes to reiterate its support for efforts to clear CDS through CCP as well as other financial products that are suitable or relevant for clearing.
It expresses disappointment, however, that the US Department of the Treasury press release of May 13 2009, did not take into account the reality that most of the severe losses suffered by banks occurred in the structured credit markets and not in the OTC CDS market.
It is also concerned that some policy makers do not seem to acknowledge that making markets more secure can be achieved through the clearing of products through recognised CCPs. In this way, CCPs would clear for both OTC and exchange traded products alike. The implication being drawn by some market participants and commentators, is that the only way of achieving regulators’ ambitions is to coerce OTC products onto exchanges.
David Clark, Chairman, WMBA, said, “The WMBA wishes to warn again that forcing OTC products onto exchanges would significantly reduce liquidity in financial markets, resulting in increased risks and costs for end users as their ability to hedge their exposures would be handicapped. Such users include governments, municipalities, corporates, and banks and other financial institutions on a global basis. Whilst the objective of making markets more secure is supported by all market participants, and certainly WMBA members, the unintended consequences of hasty policy decisions would have a serious impact on the real economy.
The WMBA believes that European initiatives indicate a firm grasp of the essential role of the clearing house, and understanding of the transparency and post trade security inherent in the activities of banks, and WMBA members that use platforms that are MiFID compliant in an already regulated environment.”
- Ends -
For further information, please contact:
Melissa Rowling, Greentarget, tel: +44 207 680 5051; melissa.rowling@greentarget.net
*Inter-dealer brokers are independent agents that facilitate access to OTC and exchange traded pools of liquidity across a full range of asset classes and their associated derivatives. After 25 years of growth, it is estimated that on average about two million OTC trades corresponding to about $5 trillion in size occur daily across the range of FX, interest rate, credit, equity and commodity asset classes in both cash and derivative forms.
Note to Editors:
The Wholesale Market Brokers Association (WMBA) is an independent industry body representing the world’s largest Inter-Dealer Brokers (IDBs) operating in wholesale financial markets including interest rates, credit, and foreign exchange and equity derivatives.
The WMBA has its origins in the FEMBA association established over 50 years ago. Its members cover markets in excess of 30 countries around the world and facilitate the overwhelming majority of transaction volumes in the over the counter (OTC) markets. For further information on WMBA and its members, please visit www.wmba.org.uk
|
