The International Organization of Securities Commissions (IOSCO) has published a final report entitled Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives.
In the final report IOSCO sets out nine standards aimed at mitigating the risks in the non-centrally cleared over-the-counter (OTC) derivatives markets. Each standard is accompanied by key considerations that describe how the standard should be implemented. The report states that authorities should seek to introduce regulatory requirements or guidance implementing each standard in a way that is consistent with the key considerations. Explanatory notes to the standards provide further elaboration on the standards and key considerations, and explain the rationales behind them.
The risk mitigation standards cover the following key areas:
- trading relationship documentation and trade confirmation;
- process and/or methodology for determining valuation;
- portfolio reconciliation;
- portfolio compression; and
- dispute resolution.
Lee Boon Ngiap, Chair of the IOSCO Working Group on Risk Mitigation Standards for Non-centrally Cleared Derivatives, and Assistant Managing Director of the Monetary Authority of Singapore, said: “The risk mitigation standards, along with the margin requirements, will help market participants better manage risks in transacting in non-centrally cleared OTC derivatives and improve the resilience of the non-centrally cleared OTC derivatives market.”