DerivAlert Blog

Work to Hammer out OTC Derivatives Rules Begins

Now the work really begins. After President Obama signed the Restoring American Financial Stability Act of 2010 into law, the financial industry regulatory bodies must now develop the rules, which will have a major affect on the OTC derivatives market.

Over the coming months, the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) will write a new regulatory framework designed to reduce systemic risk and establish more rigorous oversight of these essential risk management instruments to better serve market participants. These changes will include requirements for trading swaps on regulated platforms, central clearing of transactions and mandatory trade reporting.

While this bill has historic implications for trading in the OTC derivatives market, it remains unclear how these changes will be implemented. However, overall, the industry stands to benefit from the pending mandates. The new regulatory environment will drive the majority of swaps trading onto regulated Swap Execution Facilities (SEFs), or exchanges, which will preserve an OTC marketplace for derivatives, providing clients with access to liquidity providers in an efficient manner that complies with the new regulation.

Even though the new rules have not been hammered out yet, the passing of the Restoring American Financial Stability Act of 2010 is a move in the right direction for the OTC derivatives market.