Survey of disclosures about trading and derivatives activities
30 November 1998
The Basle Committee and the IOSCO Technical Committee issue survey report on trading and derivatives disclosure of banks and securities firms
The Basle Committee on Banking Supervision and the Technical Committee of the International Organization of Securities Commissions (IOSCO) today made public the results of their annual survey on the trading and derivatives disclosures of major G-10 banks and securities firms. The publication of this survey report represents a continued effort by the Basle Committee and the IOSCO Technical Committee to encourage financial institutions to enhance the transparency of their trading and derivatives activities.
The survey reveals that many leading banks and securities firms have continued to expand and improve their trading and derivatives disclosures since the first survey was conducted in 1995. During the last four years, the amount, detail and clarity of trading and derivatives-related disclosures in annual reports of banks and securities firms have improved substantially. The most noteworthy improvements this year were expanded discussions of operational and legal risks; an increase in disclosures of market values and their estimation; more information about counterparty credit quality and concentrations; and enhanced disclosures of market risk information.
The two Committees note, however, that continued improvement in public disclosure is needed. Some institutions do not provide enough information about key aspects of their trading and derivatives activities, including risk profiles and risk management practices. Mr. Michel Prada, Chairman of the IOSCO Technical Committee and President of the Commission des Opérations de Bourse in Paris, said; "we urge banks and securities firms to ensure their operations are transparent to the public. Investors and analysts need adequate information on trading and derivatives activities in order to understand each firm's risk profile." Mr. William J. McDonough, Chairman of the Basle Committee and President of the Federal Reserve Bank of New York, added that "management should provide quantitative information on risk exposures as well as qualitative information on risk management practices. This will enable the public to understand not only today's risk positions, but also a firm's ability to withstand tomorrow's market volatility."
The two Committees issued recommendations on trading and derivatives disclosures when this annual survey was initiated in 1995. The Committees plan on reviewing and updating these recommendations to take into account numerous developments that have occurred since that time. These include the significant increase in the amount and type of derivatives being used (including the emergence of credit derivatives), developments in disclosure practices, advances in risk management techniques and guidance issued by various standard-setting bodies.
Accordingly, the Committees intend to issue in the near future a joint paper outlining the revised recommendations. The Committees recognise that it is critical to seek ideas on what market participants - the users of information - find useful, and will invite comments from all interested parties before finalising the guidance.
The survey report was prepared in collaboration between the Basle Committee's Transparency Group and the IOSCO Working Party on the Regulation of Financial Intermediaries. The Transparency Group is chaired by Ms. Susan Krause of the US Office of the Comptroller of the Currency and a member of the Basle Committee, while the IOSCO Working Party on the Regulation of Financial Intermediaries is chaired by Mr. Richard Britton of the UK Financial Services Authority.
Notes for editors
The Basle Committee on Banking Supervision
The Basle Committee on Banking Supervision is a committee of banking supervisory authorities which was established by the central bank Governors of the Group of Ten countries in 1975. It consists of senior representatives of bank supervisory authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States. Its current chairman is Mr. William J. McDonough, President of the Federal Reserve Bank of New York. The Committee usually meets at the Bank for International Settlements (BIS) in Basle, where its permanent Secretariat is located.
The IOSCO Technical Committee
The Technical Committee of the International Organization of Securities Commission (IOSCO) is a committee of supervisory authorities for securities firms in major industrialised countries. It consists of senior representatives of the securities regulators from Australia, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, Ontario, Quebec, Spain, Sweden, Switzerland, the United Kingdom, and the United States. Its current Chairman is Mr. Michel Prada, President of the Commission des Opérations de Bourse in France.
The survey report was prepared in collaboration between the Transparency Group of the Basle Committee and the IOSCO Working Party on the Regulation of Financial Intermediaries. The Basle Committee's Transparency Group is chaired by Ms. Susan Krause, Senior Deputy Comptroller for International Affairs at the US Office of the Comptroller of the Currency and a member of the Basle Committee. The group's mission is to enhance market discipline, promote stable and efficient markets, and improve effective and comprehensive supervision of banking institutions. The Transparency Group carries out this task by identifying issues and developing guidance on the information needed by supervisors and by market participants to assess risk. It consists of supervisory experts on disclosure and reporting from the member institutions of the Basle Committee. The IOSCO Working Party on the Regulation of Financial Intermediaries is chaired by Mr. Richard Britton of the UK Financial Services Authority. The group has carried out a substantial programme of work in recent years, particularly in the areas of prudential supervision and client protection. It has the lead responsibility under the auspices of the Technical Committee for coordination and consultation with the work of the Basle Committee. It consists of securities regulators from the member institutions of the IOSCO Technical Committee.
Contents of the report
In addition to presenting the results of the 1997 survey of trading and derivatives disclosure practices of major internationally active banks and securities firms, the report briefly discusses recent disclosure initiatives by regulators, standard-setters and industry groups with respect to trading and derivatives activities.
Where can I obtain the full report?
The text of the report, "Trading and derivatives disclosures of banks and securities firms - Results of the survey of 1997 disclosures", can be obtained from the BIS Web site at http://www.bis.org and from the IOSCO Web Site at http://www.iosco.org as from 30th November 1998.
30th November 1998