The International Swaps and Derivatives Association comments on the International Organization of Securities Commission's report on derivatives risk.
“ISDA welcomes the efforts of The Technical Committee of the International Organisation of Securities Commissions (IOSCO) to examine the implementation of the G-20 commitments of improving transparency, mitigating systemic risk, and protecting against market abuse in the derivatives markets.
ISDA strongly supports the existing flexibility and choice provided for customers by the current regime and welcomes IOSCO’s recognition that a flexible approach should be taken in defining what constitutes an exchange for derivatives trading, with an expectation more illiquid products will be traded on less structured platforms. This has important implications for the European Commission’s Review of the Markets in Financial Instruments Directive (MiFID) and supports the idea that any OTF regime must provide a suitable degree of flexibility to ensure that the value that derives from the existing diversity of execution models is not lost.
ISDA believes there are significant risks associated with requiring particular contracts to be traded on a particular venue. However, if a liquidity threshold is to be used as part of the assessment of whether a product should be traded on an OTF, then that threshold should be set at a realistic level that differentiates between products, is capable of being calculated and predicted, is subject to periodic review and is able to accommodate temporary changes in the market.
ISDA believes in the importance of international convergence and welcomes IOSCO’s recognition of the impact of jurisdictional regulatory disparities and the critical importance of regulators co-ordinating such actions with their regulatory counterparts as much as possible.”