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WFE: Continued high risks in OTC derivs

Tuesday 7 December 2010 - by Andrew Hickley

The World Federation of Exchanges has expressed concerns about the "continued high risk" in the current over-the-counter derivatives market, while believing the banking sector will face heavy costs to bridge an estimated $2tn (€1.5tn) shortfall for current market exposure.

The report, written by financial markets research firm TABB group, was commissioned by the WFE to provide an "unprecedented" analysis of the OTC and exchange-traded derivative markets.

It finds that 90 per cent of the OTC market could be cleared through the regulated markets' clearing houses, with an 89 per cent cost saving made through this route, praising G20 governments and regulators for recommending that central clearing be adopted by OTC markets to reduce systemic risk.

William Brodsky, who recently completed his two-year term as chairman of the FME, said that this study backs up a view the organisation has taken for some time.

"The WFE and its members have been highlighting the risks of unregulated OTC derivatives markets since well before the 2008 financial crisis brought them into sharp focus," he said.


"As a persistent advocate for globally-coordinated regulatory reform, WFE commissioned this study to establish a benchmark on how much has been done and still needs to be done to mitigate the risk of OTC derivatives."

New WFE chairman Ronald Arculli said that the WFE will continue to press for the much-needed reforms in the OTC derivatives market, believing that the G20's timetable for introducing central clearing by 2012 is an "achievable" target.


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