The 5 Pillars of OTC Derivatives Regulatory Reform


At the recent Risk conference in Cape Town, Bianca Ruddy, Head of Market Risk Analysis at Nedbank explained how regulators have been calling for risk-reducing initiatives and transparency measures to be implemented in the OTC Derivatives world. In a nutshell, this is what the Financial Markets Act will require:


  1. Exchange Trading – all standardized OTC should be traded on an exchange / electronic platform.

  2. Central Clearing – standardized OTC derivatives should be cleared through a Central Counterparty or Clearing House.

  3. Trade Repositories – all trade confirmations to be reported to a central data warehouse to improve transparency to the regulator.

  4. Capital Requirements – liquidity ratios will need to be adhered to.

  5. Margin or collateral will be required for non-centrally cleared contracts in order to mitigate credit systemic risk.