By Yakubu LAAH InvestAdvocate

Lagos (INVESTADVOCATE)-Global securities regulator, the International Organisation of Securities Commissions (IOSCO) on Wednesday said it has proposed nine (9) standards aimed at mitigating the risks in the non-centrally cleared OTC derivatives market according to its consultation report entitled “Risk Mitigation Standards for Non-Centrally Cleared OTC Derivatives’’.

The nine areas the proposed risk mitigation standards covered are scope of coverage, trading relationship documentation, trade confirmation, valuation with counterparties and reconciliation.

Others are portfolio compression, dispute resolution, implementation and cross-border transactions.

IOSCO said the proposed risk mitigation standards are expected to bring about three (3) main benefits which include: promoting legal certainty and facilitating timely dispute resolution, facilitating the management of counterparty credit and other risks and increasing overall financial stability.

The global securities regulator affirmed that the proposed risk mitigation standards would contribute to the G20 effort to strengthen the OTC derivatives market in the wake of the global financial crisis.

‘’One of the key planks of the G20 reform programme has been to encourage the central clearing of standardised OTC derivatives. However, a substantial proportion of OTC derivatives are not standardised and hence not suitable for central clearing. The proposed standards are aimed at these non-centrally cleared OTC derivatives,’’ IOSCO said.

IOSCO further affirmed that the risk mitigation standards, which are developed in consultation with the Basel Committee on Banking Supervision (BCBS) and the Committee on Payments and Market Infrastructures (CPMI), would complement the margin requirements developed by the BCBS and IOSCO in September 2013 in strengthening the non-centrally cleared OTC derivatives market.

The global securities regulator said comments on the proposals should be submitted on or before October 17, 2014.