CPSS working group on clearing and settlement arrangements for OTC derivatives
13 February 2006
The Committee on Payment and Settlement Systems (CPSS) has agreed to set up a working group on clearing and settlement arrangements for OTC derivatives.
This working group will follow up on a report published by the BIS in 1998, entitled OTC Derivatives: Settlement procedures and counterparty risk management. Since 1998, the OTC derivatives markets have continued to grow rapidly. According to global surveys coordinated by the BIS, the total size of these markets, as measured by notional amounts outstanding, roughly tripled between 1998 and 2004. Furthermore, during that period, market practices have evolved and various enhancements to market infrastructure have been introduced.
Against this backdrop, the working group will assess the effectiveness of current risk management practices with respect to the post-trade processing infrastructure in OTC derivatives markets. This project will complement recent supervisory initiatives in some countries, relating to assignment practices and confirmation backlogs in the credit derivatives markets. It will take a comprehensive view of existing arrangements and risk management practices in the broader OTC derivatives market and evaluate the potential for risks to be mitigated by greater use of, and enhancements to, market infrastructure.
Participants in the working group will include representatives of prudential supervisors of major derivatives dealers as well as representatives of the central banks that are CPSS members. Both the Basel Committee on Banking Supervision and the Committee on the Global Financial System will be consulted as the work moves forward.
The working group aims to complete a final report in the first half of 2007.