October 13, 2010 / 1:30 PM / in 7 years

Global regulators studying derivatives trading: source

LONDON (Reuters) - Global regulators are studying how the $615 trillion off-exchange derivatives market can be shifted onto electronic platforms to curb risks, a source familiar with the matter said on Wednesday.

The International Organisation of Securities Commissions (IOSCO) met at Chennai, India, two weeks ago and set up a task force that will publish an initial report in January next year.

Its members include the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, Britain’s Financial Services Authority and India, with the European Union’s executive Commission as an observer.

“The real aim of the task force is to coordinate securities and futures regulation and develop oversight structures for derivatives markets,” the source added.

The move stems from a decision by the Group of 20 leading economies that as many derivatives contracts as possible should be standardised, reported, centrally cleared and, where appropriate, traded on exchanges or similar platforms.

The aim is to improve transparency and cut risk in a sector at the heart of the financial crisis such, particularly the near-collapse of U.S. insurer AIG.

The bulk of the world’s derivatives trading takes place in New York and London and the sector is anxious that new rules are aligned to avoid any unfair advantages emerging.

The United States has already approved a reform of Wall Street that will force some trading onto exchanges or other types of electronic platforms.

The European Commission has proposed a draft derivatives clearing and reporting law but left the issue of exchange trading until next year as part of a separate reform of trading and the IOSCO findings will feed into that.

IOSCO will look at the benefits and challenges of increasing electronic trading but stop short of actually defining where such trading is appropriate, the source said.

It will also look at what regulatory actions may be advisable to shift trading to exchanges and may draft international standards around that.

There will also be an examination of data reporting, the aggregation of data, clearing and oversight.

The Financial Stability Board, tasked by the G20 to coordinate global regulatory responses to the crisis, is due to present its own report on improving standardisation and transparency in derivatives to the G20 summnit in Seoul next month.

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