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With legislation governing over-the-counter (OTC) derivatives markets and market structures now largely in place, the effectiveness of these new measures in reducing systemic risk rests on the ability of market participants and regulators to implement changes on a global and consistent basis.

This was the conclusion of a panel discussion titled “Reducing Risk in the Financial System: Are You Ready for the Regulatory Overhaul,” hosted earlier this month in London by DTCC and its European subsidiary, EuroCCP.

The event, part of DTCC and EuroCCP’s ongoing thought leadership series on global financial reform, brought together market participants, including clients, industry associations and regulators.

Moving to implementation
In his opening remarks, Andrew Gray, DTCC Managing Director of Core Business Management, highlighted that the discussion of the regulatory changes was particularly timely, given the imminent transition from the phase of legislation to the phase of implementation of these reforms.

The keynote speech, delivered by David Bailey, Head of Markets Infrastructure and Policy, U.K. Financial Services Authority, was an important reminder of the issues that the new regulatory regimes aim to address. The end-result, provided the reforms are implemented effectively, should lead to a financial system that is more resilient and transparent, and where counterparty risk is better managed. Therefore, it is imperative that firms embrace regulatory changes and actively prepare for them and authorities will work with the industry to achieve that outcome, according to Bailey.

‘As we move from legislation to implementation, we must fully understand how new regulations will impact the global industry and the supporting market infrastructure.’ – Andrew Gray, DTCC Managing Director, Core Business Management

The big picture
The panel discussion that followed was moderated by market infrastructure veteran, Alberto Giovannini, who reminded attendees that when the 2007-08 crisis erupted, regulators were very much in the dark in terms of understanding where the big risk concentrations were.

Stewart Macbeth, DTCC President and CEO of DTCC’s Deriv/SERV LLC subsidiary, and George Handjinicolau of International Swaps and Derivatives Association, discussed the effectiveness of the new regulatory framework, but warned of fragmentation as a major risk threatening the regulatory oversight of the global OTC derivatives markets.

Stephen McGoldrick of Deutsche Bank and Diana Chan, CEO of EuroCCP, brought insights from the cash equity markets and what the OTC derivatives markets can learn from the experience in the cash equity markets.

Former Commodity Futures Trading Commissioner Michael Dunn, DTCC non-executive Chairman, DTCC Data Repository (U.S.) LLC, addressed the issue of legal certainty, focusing in particular on the need to harmonize cross-border legislation.

Global systemic risk,

“This event reflected DTCC’s ongoing commitment to fostering more open dialogue and collaboration amongst market participants, policymakers and regulators,” said Gray. “As we move from legislation to implementation, we must fully understand how new regulations will impact the global industry and the supporting market infrastructure.”@