The over the counter (OTC) derivatives market has come under pressure in the aftermath of the economic meltdown and subsequent increased regulatory challenges. However, according to a new study by Aite Group, OTC asset classes are experiencing growth again, with growth in the credit default swaps (CDS) market outpacing other asset classes. According to the report, the drivers of this growth included a steady need for derivatives during the credit crisis and the development of central counterparties by exchanges to clear CDS.

But there are big changes and challenges ahead for the OTC market, as new reforms passed by the Senate will require most OTC derivatives contracts be traded on exchange and cleared.  Issues surrounding central clearing and exchange trading, according to the report, will include determining ownership of clearinghouses, trading requirements and exceptions and capital and margin requirements. When discussing upcoming efforts to harmonize the Commodity Futures Trading Commission and Securities and Exchange Commission and give them the authority to regulate OTC derivatives, the report states: “If done correctly, it could help simplify the regulation of these markets. If it is not done correctly, market participants fear that regulatory confusion will create a difficult-to-navigate environment muddied by redundant bureaucracy.”

Tags: CFTC, clearing, Financial Regulatory Reform, OTC, OTC regulation, SEC

This entry was posted on Tuesday, June 22nd, 2010 at 12:13 pm and is filed under Regulatory/actions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.