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

IOSCO published a final report, titled “Risk Mitigation Standards for Non-Centrally Cleared OTC Derivatives,” which outlines standards that are intended to reduce risk in the non-centrally cleared OTC derivatives markets.

The risk mitigation standards in the report were developed in consultation with the Basel Committee on Banking Supervision and the Committee on Payments and Market Infrastructures. They stem from a proposed standards report that was published in September 2014.

The final report focuses on a number of ways in which risk standards can be applied in key areas to reduce risks in the non-centrally cleared OTC derivatives market. These include:

  • financial entities and systemically important non-financial entities’ employing risk mitigation techniques;
  • executing written trading relationship documentation prior to a trade;
  • sending trade confirmations as soon as practicable after execution;
  • agreeing on the valuation process with counterparties;
  • ensuring portfolio reconciliation;
  • agreeing on policies and procedures for assessing and engaging in compression; and
  • agreeing to dispute resolution procedures with counterparties.

In addition, the report recommends that regulators implement rules that require the above procedures as soon as possible, and that regulatory regimes be harmonized to facilitate cross-border transactions.

See: Risk Mitigation Standards for Non-Centrally Cleared OTC Derivatives.
Related news: IOSCO Publishes Consultation Report on Risk Mitigation for Non-Centrally Cleared OTC Derivatives (September 18, 2014).

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