A look at the rapidly changing market infrastructure supporting the OTC derivatives markets

Abstract

Arguably the most important developments in the over-the-counter (OTC) derivatives markets over the last few years are the creation of central trade repositories (TRs) and the introduction of central counterparties (CCPs). Both play an important role in strengthening the core financial infrastructure for OTC derivatives transactions. They contribute to the transparency, the safety and the efficiency of the OTC markets. This paper, after a brief look at the organisation of the derivatives markets, will first discuss the functioning of trade repositories and CCPs and then highlight the risks and benefits that need to be considered when TRs and especially CCPs are introduced. It will also emphasise the importance of strong international standards to ensure the safety and soundness of the clearing and settlement arrangements for OTC derivatives transactions.