10 Jun 2009, David Benyon, Operational Risk & Regulation
WASHINGTON, DC - International Swaps and Derivatives Association (Isda) chief executive Robert Pickel has addressed a Subcommittee of the House Financial Services Committee on the operational risks and counterparty risks of the over-the-counter derivatives market.
Pickel's testimony to the Subcommittee on Capital Markets, Insurance and Government- sponsored Enterprises addressed public policy considerations for the OTC business - especially industry body Isda's work to standardise contracts to mitigate counterparty, operational and legal risks.
"The OTC derivatives industry is an important part of the financial services business in this country and the services we provide help companies of all shapes and sizes," said Pickel. "Let me assure you that we in the derivatives industry do recognise the challenges that we face as we seek to enact a comprehensive and prudent system of regulatory reform."
Pickel went on to say that requiring exchange trading for all OTC derivatives would harm the ability of US companies to manage their individual financial risks and harm the wider economy.
Current plans by US Treasury secretary Timothy Geithner are for standardised OTC derivatives to be cleared through central clearing houses, while non-standardised contracts do not [word missing? 'require'?] exchange clearing under the regulation.
Geithner explained this exception to the rules by saying non-standardised derivatives were of minor significance within the industry and would be more closely supervised by other means.
A full transcript of Pickel's testimony can be found at Isda's website, here.
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