Derivatives regulations that require trades of OTC contracts to follow more stringent rules will provide a benefit to the global economy that exceeds the costs incurred by lending institutions involved in such transactions, according to a recent industry report.
The document, which was titled "Macroeconomic impact assessment of OTC derivatives regulatory reforms," was released by a group of regulators called the Macroeconomic Assessment Group on Derivatives.
The heads of the International Organization of Securities Commissions, the Committee on Payment and Settlement Systems, the Financial Stability Board, the Basel Committee on Banking Supervision and the Committee on the Global Financial System represent the membership of the MAGD, Commodities Now reported.
The requirements needed for OTC derivatives transactions conducted by banks, which obligate these contracts to be cleared centrally and impose certain margin requirements for trades of these securities that are not cleared centrally, were all covered in the report, according to the media outlet.
The report found that by preventing further financial crisis, the rules affecting these OTC derivatives trades calculated the increase in global gross domestic product and also the costs to this economic measure under three different scenarios that involved different levels of netting.
◦ Asset Liability Management
◦ Portfolio Risk
◦ Sensitivities & Hedging
◦ Stress Testing & Scenario Analysis