City of London defends OTC derivatives markets
Political pressure for reform risks crushing the over-the-counter derivatives market, warns a report published today by the City of London.
The City of London Corporation emphasised the report, produced by the UK financial markets consultancy Bourse Consult, did not necessarily represent its position and was meant for discussion only.
The corporation blames the financial crisis on "the major guilty parties... collateralised debt obligations on asset-backed securities which were sold into highly leveraged special investment vehicles held by banks as off-balance sheet assets".
Credit default swaps (CDS) were not significantly involved, but nonetheless face much heavier regulation in the eurozone and the US. "In accepting the inevitable additional regulation that will come, it is important that the very successful OTC derivatives market is not crushed in the process," wrote the report's author, Bourse Consult's Lynton Jones.
He blamed the incompetence and overconfidence of banks, rating agencies and regulators for what he called "a crisis caused by people's misjudgment, not a product-led crisis", and argued against "misguided" pressure to set up regional central counterparties for derivatives in the US and the eurozone.
The report has been sent out to various companies operating in the City "to prompt discussion", a City of London official told Risk, but added there are no plans so far for any follow-up discussions or exercises.
Several exchanges plan to launch CDS clearing services in Europe this year, and the bulk of the interdealer market has now committed to use central counterparties in response to pressure from regulators and central banks to improve the infrastructure of the CDS market. But the OTC market has also come under fire for assisting speculation and lacking transparency - last week the New York Fed's senior vice-president Theo Lubke said it was "simply unacceptable in today's environment that the design and structure of the OTC derivatives market can be controlled by a handful of large dealers".
See also: Isda AGM: US regulator identifies six weaknesses in OTC market
Dealer predicts 85% of CDSs could be centrally cleared by end of 2009
Trichet: Eurozone CCP will help improve oversight
Banks agree to EU CCP for clearing CDS
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Markets
Pimco’s cuts to FX forwards positions hit dealers in Q4
Counterparty Radar: State Street takes top spot among dealers as BNP Paribas slides to fourth
Robinhood buys Marex FCM as futures entry takes shape
Retail broking giant follows WeBull into futures market
Deutsche Börse building equities dark pool
Move comes hot on heels of Euronext launching its own dark pool
European funds face upsurge in settlement risk after T+1
Trade body Efama finds up to 40% of daily FX flows may have to settle outside protection of CLS
Energy credit optimisers vie to become headline act
Competing initiatives may dilute ‘network effect’ as race to fill void left by TP Icap intensifies
Traders eye negative CDS-bond basis
Changed market dynamic can be profitable for those firms able to capture it
Reluctantly, CME moves to clear US Treasuries
CME Group will seek regulatory approval to clear US Treasuries, chief executive Terry Duffy said today
JP Morgan leads US banks’ FX trading revenues
Only two dealers saw revenue growth through 2023 as Goldman Sachs reports 75% drop
Most read
- Quants are using language models to map what causes what
- Reluctantly, CME moves to clear US Treasuries
- The bank quant who wants to stop gen AI hallucinating