As Deadline Looms G20 Urges Action on OTC Derivatives

In their communiqué from June's Los Cabos meeting, the G20 said that it expects member nations to finalize their OTC derivatives regulations in order to meet the the G20's fast approaching deadline.  The communiqué urges member nations to fast track their legislative and regulatory policy processes so that by the end of 2012 all standardized OTC derivative contracts are traded on exchanges or electronic trading platforms (as appropriate) and cleared through central counterparties.  In addition, the G20's committment calls for OTC derivative contracts to be reported to trade repositories, and non-centrally cleared contracts to be subject to higher capital requirements by the end of 2012 as well. 

We reaffirm our commitment that all standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012, OTC derivative contracts should be reported to trade repositories and non-centrally cleared contracts should be subject to higher capital requirements. 

The G20 communiqué does recognized that significant progress that has been made by the Financial Stability Board in enunciating four essential safeguards to central clearing of derivatives.  In their June 2012 progress report, the FSB set forth these basic safeguards intended to help "fully and consistently implement the G20 commitments through the development of international standards."

1. Fair and open access by market participants to CCPs, based on transparent and objective criteria.
   
   
2. Cooperative oversight arrangements between relevant authorities, both domestically and internationally and on either a bilateral or multilateral basis, that result in robust and consistently applied regulation and oversight of global CCPs.
   
   
3. Resolution and recovery regimes that aim to ensure the  core functions of CCPs are maintained during times of crisis and that consider the interests of all jurisdictions where the CCP is systemically important.
   
   
4. Appropriate liquidity arrangements for CCPs in the currencies in which they clear. 

With just under six months remaining before the deadline, the G20 urges policy makers to make haste and to use these basic principles to introduce some global consistency as they craft OTC clearing regulations for their particular jurisdictions.

Now that substantial progress has been achieved in the four safeguards for a resilient and efficient global framework for central clearing, jurisdictions should rapidly finalize their decision-making and put in place the needed legislation and regulations to meet the G20 commitment for central clearing. We acknowledge the progress made to develop the key principles to promote internationally consistent minimum standards for the margining of non-centrally cleared derivatives and encourage international standard setters to finalize the proposed global margin standards by the end of this year, to match the implementation deadline for other OTC derivatives reforms and for the Basel capital framework.