CPSS IOSCO Report on Principles for Financial Market Infrastructures

The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the
International Organization of Securities Commissions (IOSCO) issued final version of their new Principles for financial market infrastructures (PFMI report).

The PFMI report replaces the CPSS and IOSCO’s previous standards for systemically important payment systems, central securities depositories, securities settlement systems (SSSs), central counterparties (CCPs) and trade repositories (TRs) (collectively FMIs), namely:

- Core principles for systemically important payment systems (CPSIPS), issued in 2001;
- Recommendations for securities settlement systems (RSSS), also issued in 2001; and
- Recommendations for central counterparties (RCCP), issued in 2004.

In March 2011, CPSS and IOSCO published a draft version of the new principles in a consultative document. CPSS and IOSCO received 120 comment letters on the consultative document. The comments were detailed and constructive and were generally supportive of the principles. However some noted various areas for potential improvement, including greater clarity in some areas and more specificity on the application of the principles to certain types of FMI.

The PFMI report harmonises and, where appropriate, strengthens the previous international standards. It also incorporates additional detailed guidance for over-the-counter (OTC) derivatives CCPs and TRs. In general, these new standards are expressed as broad principles in recognition of FMIs’ differing organisations, functions and designs and the range of ways potentially available in relation to some issues to achieve a particular result.

In some cases, however, the PFMI report does incorporate a specific quantitative minimum requirement (such as in the credit, liquidity and general business risk principles) to ensure a common base level of risk management across FMIs and countries.

In addition to the new principles themselves, the PFMI report also outlines the general responsibilities of relevant authorities for FMIs in implementing these standards. CPSS and IOSCO members will strive to adopt the new principles by the end of 2012 and put them into effect as soon as possible. FMIs are expected to observe the principles as soon as possible.

CPPS-IOSCO Release Final Report on OTC Derivatives Data Reporting and Aggregation Requirements

The Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements and the Technical Committee of the International Organization of Securities Commissions (IOSCO) have published their “Report on OTC derivatives data reporting and aggregation requirements”.

The report deals with the data on over-the-counter (OTC) derivatives transactions that should be collected, stored and disseminated by trade repositories (TRs). It stresses that by centralising these data, TRs will be able to provide authorities and the public with better and more timely information. This will make OTC derivatives markets more transparent, help prevent market abuse and promote financial stability.

The final report reflects comments received in response to a consultative version published in August 2011. It was expanded in light of the consultation exercise in order to explore possible options for addressing data gaps.

The report was also updated to reflect recent international advances made by the Legal Entity Identifier (LEI) working group, under the auspices of the Financial Stability Board (FSB), in support of a request made at the G20 Cannes summit to advance the development of a global LEI. Another aim of these international efforts is to assist with implementation of the European Market Infrastructure Regulation.

However, as the report points out, questions remain about how best to address data gaps and determine which authorities should have access to TRs. As requested by the G20, two internationally coordinated working groups will address these issues in the course of the year. The FSB will set up an ad hoc group of experts to further explore means of filling data gaps, and the CPSS and IOSCO will form a joint group to study authorities’ access to TR data.

The report responds to Recommendation 19 of the FSB report of 19 October 2010 titled “Implementing OTC Derivatives Market Reforms”, which called on CPSS and IOSCO to consult with the authorities and the OTC Derivatives Regulators Forum in developing:

- minimum data reporting requirements and standardised formats, and
- the methodology and mechanism for data aggregation on a global basis. The final report was due at end 2011.

The requirements and data formats will apply both to market participants that report to TRs and to TRs reporting to regulators and the public. The report also finds that some information not currently supported by TRs would be helpful in assessing systemic risk and financial stability. It puts forward several options for bridging these data gaps.

Issues concerning data access for authorities and reporting entities are discussed, including methods and tools that could facilitate authorities’ access to data. The report emphasises that public dissemination of data helps all stakeholders to better understand OTC derivatives markets, facilitates the exercise of market discipline and underpins investor protection.

The report also deals with the mechanisms and tools that authorities will need to aggregate OTC derivatives data.

Follow these links to download the report from the BIS or IOSCO websites:

http://www.bis.org/publ/cpss100.htm
http://www.iosco.org/library/pubdocs/pdf/IOSCOPD366.pdf