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MFA commits to reduce risk in OTC derivatives markets

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The Managed Funds Association is joining major derivatives dealers and buy-side institutions in presenting a letter to global industry regulators that establishes new commitments to add

The Managed Funds Association is joining major derivatives dealers and buy-side institutions in presenting a letter to global industry regulators that establishes new commitments to address key concerns raised by the G20, European Commission and US Department of Treasury.

MFA first joined the major dealers in presenting a letter to global regulators detailing operational targets and other industry commitments in March 2008.
 
The latest letter outlines a firm commitment towards strengthening the over-the-counter derivatives infrastructure under the auspices of the Operations Management Group and its constituents and partners, including the newly formed Board Oversight Committee of the International Swaps and Derivatives Association. 
 
Richard H. Baker, MFA president and chief executive (pictured), says: ‘MFA, on behalf of the alternative investment industry, is committed to proactively developing and advancing these critical commitments for reducing counterparty and systemic risks and improving operational efficiency in OTC derivatives processing. MFA fully endorses the collaborative efforts with global regulators to support commercially viable centralized clearing platforms, to universally report all OTC derivatives trades and to promote sound business practices. MFA considers today’s letter to be an important step forward for OTC derivatives markets and looks forward to continuing our participation in the design of future steps.’
 
Commitments to reduce systemic risk in the OTC derivatives markets include:
 
• Implementing data repositories for non-cleared transactions in the OTC derivatives markets to ensure appropriate transparency and disclosure, and to assist global supervisors with oversight and surveillance activities;
• Clearing for OTC standardized derivative products;
• Enabling customer access to clearing through either direct access as a clearing member or via indirect access, including the benefits of initial margin segregation and position portability;
• Delivering robust collateral and margining process, including portfolio reconciliations, metrics on position and market value breaks, and appropriate dispute resolution mechanics;
• Updating industry governance to be more inclusive of buy-side participants through collaborative partnerships among the Major Dealers, MFA and other trade associations; and
• Continuing to drive improvement in industry infrastructure, as well as engage and partner with supervisors, globally, to expand upon the substantial improvements that have developed since 2005.
 
MFA began working with the dealer community in early 2005 to develop ways to improve processing practices for new trades and novations in the credit derivatives market. 

Since that time, collaborative efforts with major dealers, ISDA and the asset managers group of the Securities Industry Financial Markets Association led to initiatives that resulted in improvements in the trade infrastructure across OTC derivatives markets and reductions in backlogs of trade confirmations for credit derivatives.

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