The role of market infrastructures in OTC derivatives markets

Regulators around the globe are trying to improve market infrastructures related to the over-the-counter (OTC) derivatives markets. The recent crisis has proved that financial markets with reliable and transparent post-trading infrastructures are much more resilient than other segments without basic and primary market infrastructures. OTC derivatives markets were the focus of the regulator’s attention, basically due to two main aspects: (1) the bilateral management of risks did not work as expected; (2) a lack of transparency, which is the main characteristic of OTC markets, played a negative role when the financial crisis raised doubts about market participants’ solvency. Regulators around the globe reached an agreement in Pittsburgh in September 2009. They are trying to change the map and are pushing towards more centralised risk management procedures by means of the mandatory use of central counterparties, whenever possible, as well as increasing transparency for OTC derivatives markets by requiring position reporting to trade repositories. This paper discusses some of the key aspects of achieving a real and useful transparency for OTC derivatives markets and the role of existing market infrastructures in supporting the regulator’s efforts to bring more clarity to such an opaque world.