The Federal Reserve Bank of New York welcomes the commitments announced today by the 18 major market participants to continue their progress toward improving the infrastructure that supports the global equity derivatives market.
These commitments, which follow the earlier initiatives to improve the post-trade processing infrastructure in the over-the-counter (OTC) credit derivatives markets, build on the equity derivatives actions that were outlined by the major market participants in November 2006. Since that time, market participants have met their commitments to reduce equity derivative confirmation backlogs by 25 percent by January 31, 2007, to improve the foundation for automated processing by increasing the coverage of standardized Master Confirmation Agreements (MCAs) and to expand the use of electronic processing platforms.
Nevertheless, there remain significant challenges to automating the equity derivatives infrastructure. Both executing industry standard MCAs and transitioning fully to electronic platforms require significant time and resources. Additionally, dealers have not maintained the backlog reduction levels achieved in January 2007. The commitments announced today recognize these challenges. Of particular importance are:
- setting additional targets to reduce confirmation backlogs and achieve high levels of electronic processing among dealers,
- recognizing that clients will play a significant role in achieving a highly automated environment by setting a July 31, 2007 target for a broader client onboarding plan,
- completing execution of key published MCAs among dealers by May 31, 2007, and
- committing to dedicate sufficient resources at each of the major market participants to meet these objectives.
In addition to our focus on the equity derivatives infrastructure, the supervisory community continues to monitor the infrastructure for processing credit, interest rate and commodity derivatives very closely. In that regard, we welcome the industry’s steps to release OTC derivatives processing trend charts to the public on a quarterly basis.The New York Fed will continue to work closely with other U.S. and international industry supervisors with a view to encouraging industry participants to take any other steps necessary to improve the market infrastructure that supports OTC derivatives trading.