The Over-the-Counter Derivatives Regulators Group issued a report last week that provides an update to the G20 on its progress in resolving OTC derivatives cross-border implementation issues.

On the heels of the financial crisis, G20 leaders agreed in 2009 to global reforms to the OTC derivatives market. The reforms are intended to boost transparency, reduce systemic risk, and guard against market abuse.

The task of the Over-the-Counter Derivatives Regulators Group (ODRG) is to tackle cross-border implementation issues faced by the regulators. ODRG is made up of authorities with responsibility for the regulation of OTC derivatives markets in Australia, Brazil, the European Union, Hong Kong, Japan, Ontario, Quebec, Singapore, Switzerland, and the United States.

In its report, issued on Sept. 10, the ODRG provided an update regarding two areas in which it is working to develop approaches to address cross-border issues. These areas include addressing potential gaps and duplications in the treatment of branches and affiliates, and the treatment of organized trading platforms and implementation of the G20 trading commitment that all standardized OTC derivatives contracts be traded on exchanges or electronic trading platforms.

“In its analysis of the treatment of affiliates, the ODRG has been considering clearing and trading obligations and potentially other areas,” the report stated. “The ODRG is still considering how equivalence and substituted compliance decisions should be taken in the context of transactions involving affiliates. The ODRG will consider whether any of the approaches for affiliates also may be appropriate for branches.”

With respect to organized trading platforms, the ODRG agreed that one or more of the approaches should be considered to avoid unnecessary burdens and unintended consequences for foreign organized trading platforms, consistent with statutory and other legal requirements: recognition; registration and substituted compliance; or registration categories and exemption.

The ODRG also agreed that, whenever possible, laws and regulations applicable to foreign organized trading platforms, including registration requirements, should be made clear before their implementation. “Enhancing clarity and predictability of the details of applicable laws and regulations for various stakeholders should help reduce regulatory uncertainty and avoid unnecessary burdens and unintended consequences.”

The report also called for “appropriate transitional measures and a reasonable but limited transition period for foreign organized trading platforms.”

The ODRG further called on the Financial Stability Board to take steps to facilitate the removal of barriers to the reporting of counterparty-identifying information to trade repositories. "Masking on an ongoing basis would hinder the effectiveness of reporting obligations, and thus undermine the G20 objectives of improving transparency in the derivatives markets, mitigating systemic risk, and protecting against market abuse,” the report stated.  

“We therefore request the FSB discuss the setting of an ambitious but realistic deadline by which the barriers to trade reporting such as those mentioned above are addressed,” the report stated. “We believe any deadline set should be appropriate in order to achieve the G20’s objectives, while being feasible for the jurisdictions concerned, having regard to their legislative processes.”

Other Areas

The report also addressed four areas in which it was working to implement understandings reached previously. These include:

Equivalence and substituted compliance;

Clearing determinations;

Risk mitigation techniques for non-centrally cleared derivatives transactions; and

Data in trade repositories and barriers to reporting to trade repositories.

The ODRG anticipates that it will submit its next report in preparation for the G20 Leaders Summit in November 2014.