The International Organisation of Securities Commissions’ (IOSCO) has published the ‘Unregulated Financial Markets and Products – Final Report’ prepared by the Task Force on Unregulated Financial Markets and Products on the 4th of September, 2009. The Task Force had earlier, in May published its consultative report on the issue (see our news here)
The Final Report recommends the regulatory actions to improve the transparency and oversight of the securitization and credit default swaps (CDS) markets.
As regards securitisation, IOSCO’s recommendations are not lot different from what regulations in the EU and US have proposed – alignment of incentive in the securitization value chain, essentially implying retention of originator stakes in securitized pools. CDS issues relate to counterparty risk, operational risk and market transparency.
The main securitisation-related recommendations are:
- Consider requiring originators and/or sponsors to retain a long-term economic exposure to the securitisation in order to appropriately align interests in the securitisation value chain;
- Require enhanced transparency through disclosure by issuers to investors of all verification and risk assurance practices that have been performed or undertaken by the underwriter, sponsor, and/or originator;
- Require independence of service providers engaged by, or on behalf of, an issuer, where an opinion or service provided by a service provider may influence an investor's decision to acquire a securitised product; and
- Require service providers and/or issuers to maintain the currency of reports, where appropriate, over the life of the securitised product.
The main CDS recommendations are:
Provide sufficient regulatory structure, where relevant, for the establishment of CCPs to clear standardised CDS, including requirements to ensure:
- appropriate financial resources and risk management practices to minimise risk of CCP failure;
- CCPs make available transaction and market information that would inform the market and regulators; and
- cooperation with regulators;
- Encourage financial institutions and market participants to work on standardising CDS contracts to facilitate CCP clearing;
- The CPSS-IOSCO Recommendations for Central Counterparties should be updated and take into account issues arising from the central clearing of CDS;
- Facilitate appropriate and timely disclosure of CDS data relating to price, volume and open-interest by market participants, electronic trading platforms, data providers and data warehouses;
- Support efforts to facilitate information sharing and regulatory cooperation between IOSCO members and other supervisory bodies in relation to CDS market information and regulation; and
- Encourage market participants' engagement in industry initiatives for operational efficiencies.
links: for text of the IOSCO report, see here
(Reported by: Nidhi Bothra)