Leading regulators, legislators, derivatives market participants, technology and resource providers met in Montreal this week at the International Swaps and Derivatives Association’s (ISDA) 30th Annual General Meeting (AGM). The main theme of this years AGM was how to tackle the fragmentation the derivatives industry is currently experiencing as a result of G20 financial regulation being implemented at the local level over the last 3 years.
ISDA has been driving standards globally for over 30 years to provide a safe and efficient global derivatives market. Over this period ISDA and its members have been tremendously successful in identifying common and consistent processes and practices to ensure economic and legal certainty of derivatives contracts.
However, “There is clear evidence that global derivatives markets are fragmenting. The derivatives market has always been global, serving global clients. But regulations are implemented at the local level. Conflicting, confusing or overlapping rules can encourage derivatives users to stay local and lose the benefits of competitive pricing and service,” said Eric Litvack, ISDA’s Chairman.
Throughout the conference both regulators, legislators, derivatives market participants, technology and resource infrastructure providers were openly and innovatively discussing how together we can reduce this fragmentation through harmonisation of cross border regulation, infrastructure and processes.
Transaction Reporting was a key area of discussion specifically around optimising the processes, technology and infrastructure delivered to support Dodd Frank, EMIR and the other G20 countries legislations. Looking back at what was delivered piecemeal to support each country’s reporting requirements, consolidating and industrialising this to eliminate the duplicative and inefficient environment the industry now finds itself operating in.
Other areas of immediate focus for industry collaboration to optimise and reduce future fragmentation were: the margining of non-cleared derivatives (inputs, calculations and outputs), as the US, Europe and Asia start to finalise their margin rules; trade execution rules given the impending revision of the Markets in Financial Instruments Directive (MIFID II); and trading book capital rules as the Basel Committee on Banking Supervision (BSBC) work to finish their review.
With over 850 industry participants attending ISDA’s 30th AGM, it was a clear indication that the industry is looking to work together to identify, lay out and design the future technology and resource infrastructure to create a long term stable, sustainable and efficient operating environment. Integrating cutting edge technology and new resourcing solutions collaboratively across market participants will be critical to minimise the impact of conflicting or overlapping rules.