Asian regulators tackle OTC derivative markets reforms

March 5, 2015 11:48 am 

By Joann Santiago

PANGLAO ISLAND, March 5 (PNA) — Finance officials from Asia have put focus on common rules on derivatives trading vis-à-vis the implementation of global reforms on over-the-counter (OTC) derivatives markets.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said attendees of the 8th Financial Stability Board’s (FSB) Regional Consultative Growth for Asia (RCGA) meeting in Panglao Island, Bohol have discussed impact of global reforms on OTC derivatives markets on regional environment.

In line with this, the BSP has exposed draft rules on OTC derivatives.

Tetangco said exposing the draft rules to banks is the first step for the regulator to gather data.

He said there is a need to have an idea on the size of the market as well the products being offered by the banks.

”You need to get a better appreciation of the nature of the products, maturities, and pricing,” he said.

In the case of the Philippines, the central bank chief said common derivatives here are foreign exchange (fx) swaps and interest rate swaps.

Beneficiaries of an enhanced derivatives market include exporters and importers as well as corporates.

Tetangco said this markets enable businessmen to hedge on risks such as on currency and interest rates.

”That’s the crucial role of derivatives (to) provide the way of hedging risks,” he said.

Tetangco said views on how to have a better OTC derivatives markets in Asia have been submitted before the FSB for the latter to have a better grasp of the situation.

He, however, stressed that “it’s just a view (and) it’s not like a formal proposal.”

”We cited the difficulties that we see,” he said citing that there are lots of risks here in the region given its small derivatives market.

Tetangco said there is a need to consider country-specific issues in line with the implementation agreed international reforms so that final outcomes will be similar to what the group wants.

Aside from reforms in the derivatives market, the other topics discussed during the meeting are FSB’s policy priorities and work plan.

In a statement, the FSB RCGA said these topics were discussed after they noted the vulnerabilities and financial stability issues affecting the region such as the drop in oil prices and its impact on growth prospects.

”Though the sharp decline in oil prices should be positive for global growth, in some countries growth forecasts have been revised downward and lower oil prices were adding to disinflationary pressure,” it said.

Another topic is on the reforms on international bank regulatory standards and their impact on Asia’s banking sector.

”Given the current interest rate environment and taking into account the specific features in Asian banks and Asian markets, they began by focusing on how to effectively monitor and control interest rate risk in the banking book of Asian banks,” it said.

The Basel Committee’s consultative document proposing changes to the Standardised Approach to measure credit risk in the capital framework1 and how it would affect Asian banks was also discussed. (PNA)

LGI/JS/EBP

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