DTCC Connection

Jun 17, 2015 • DTCC Connection

Assessing the Impact of Regulatory Reform on the Derivatives Markets

By Theresa Pagliocca

Larry Thompson, DTCC Vice Chairman and General Counsel.
Larry Thompson, DTCC Vice Chairman and General Counsel.

Regulatory reform surrounding derivatives markets, financial infrastructures and capital, liquidity and leverage requirements continue to rollout and impact the industry.

These critical topics were part of the discussion during the recent Institute of International Finance (IIF) North America Summit in New York. A wide range of industry participants, including CEOs and chairmen, key policymakers and leading economists from around the globe, attended the two-day event.

The summit focused on the impacts of regulation and technology on financial markets and the economy, and the state of the global economy, monetary policy, capital flows and emerging market countries and risks.

Larry Thompson, DTCC Vice Chairman and General Counsel, participated on the summit’s panel, “Assessing the Impact of Regulatory Reform.” The discussion was moderated by Douglas Elliott, Fellow at Brookings Institute and additional panelists included Kevin Blakely, Member of the Senior Advisory Board at Oliver Wyman and Steve Strongin, Head of Global Investment Research at Goldman Sachs.

The panel focused on the general impact of the regulatory agenda, while highlighting challenges of a cumulative assessment. Panelists provided insight into the potential benefits and costs of reform on the functioning of the financial system and the impact on its structure, participants and offerings.

Throughout the discussion, Thompson called attention to the impact of reform efforts on financial market infrastructures (FMIs). “FMIs have an increasingly critical role in reducing cost and managing systemic risk across markets globally,” he explained. “FMIs, however, remain challenged by the introduction of new regulatory mandates, the complexity of rules, and the potential unintended consequences of regulations.”

Thompson highlighted transparency challenges and cautioned that fragmentation and disharmony among jurisdictions is impeding the ability of trade repositories to provide usable data to regulators.

“The G20 goal of enhanced transparency remains only partly addressed,” he said. “Jurisdictions have made significant progress in implementing rules around reporting. However, practical and legal barriers limit data sharing across jurisdictions.”

He explained that while trade repositories are essential to achieving greater transparency in the global derivatives markets, they have not been able to reach their full potential due to the fragmented landscape and lack of harmonization among regulators. These points were outlined in a recent DTCC white paper, G20’s Global Derivatives Transparency Mandate.

Another key consideration Thompson raised is the challenging landscape resulting from regulations mandating stronger collateral requirements. “Relieving this pressure requires cross-border collaboration and development of industry-wide solutions,” he said. “Today’s marketplace is rapidly evolving and as a result, the ability to seamlessly implement collateral processes across asset classes and borders is critical.”

Thompson highlighted DTCC-Euroclear Global Collateral Ltd, a recent joint venture to deliver processing solutions that will increase efficiency and reduce risk and costs within the highly-fragmented, complex collateral management ecosystem.

IIF LogoFor more information regarding the IIF North American Summit, including video footage of the event, please visit www.iif.com.

 

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