The Committee on Payment and Settlement Systems (CPSS) and the technical committee of the International Organization of Securities Commissions (IOSCO), have set up a working group to review the application of the 2004 CPSS-IOSCO recommendations for central counterparties (CCPs) to clearing arrangements for over-the-counter (OTC) derivatives. The recommendations set out standards for risk management of a central counterparty.
Participants in the working group include representatives of the central banks that are members of the CPSS, representatives of the securities regulators that are members of the IOSCO technical committee, and representatives of the IMF and the World Bank. The participants will propose guidance on how CCPs for OTC derivatives may meet the standards set out by the recommendations. They will identify any areas in which the recommendations might be strengthened or expanded, to better address risks associated with the central clearing of OTC derivatives.
CPSS and IOSCO believe that the expansion of centralised clearing and settlement is a positive development because, if well designed, CCPs can reduce systemic risk in financial markets. Accordingly, the relevant authorities for CCPs for OTC derivatives seek to ensure that each CCP meets the risk management standards set forth in the recommendations. However, applying the recommendations in practice can involve a significant degree of interpretation and judgment.
The working group will co-ordinate with other regulatory authorities and communicate with the industry, as appropriate, as the work moves forward.
CPSS monitors and analyses developments in domestic payment, settlement and clearing systems as well as in cross-border and multicurrency settlement schemes.
Spain-based IOSCO promotes regulation, establishes standards and surveillance on international securities transactions and exchanges information among domestic markets.
