A little more formality in a market still very secret

A little more formality in a market still very secret. Banks are committed to save, a few months, all transactions are stock derivatives not listed in a dedicated database. Next may must be launched at the global level the first Chamber recording, or "repository" specifically designed for commodity derivatives actions of OTC Over The Counter (OTC). A first very opaque deemed market.

The initiative arises indirectly the crisis and the desire of the supervisors to have more access to information on derivatives markets. Regulators have indeed asked banks the creation of this database after having rediscovered the virtues of the existence of a similar House in credit derivatives (CDS). The latter had been put in place several years ago to legally secure CDS contracts, but has proved a valuable source of information the crisis came. "Regulators realized that they had no awareness of the amount of stock at stake on the CDS, and have asked more than legibility on the derivatives outstanding agreement on other underlying, including rates and actions", said a banker.

London or Paris

Banks are therefore engaged in June, via une letter to the Fed, to launch two other dedicated rooms. The "repository" on rate swaps was launched end of 2009, on derivatives shares, called "equity derivatives data repository", must be created in May. At the end of a call for tenders, the International Swaps & Derivatives Association (ISDA), which represents the major investment banks active in derivatives trades, awarded a few months ago the market to two organizations, DTCC and Markit. The question of its location, in Paris or London, is currently debated.

Technical aspects of the launch of this entity represents a challenge for the market, banks and regulators. "The general idea of these databases is to allow the regulator to know where are the concentrations of derivatives not listed, and better control the risk of return", says an expert. In the shares of OTC derivatives, market much smaller than that of CDS or rate swaps, the issue is specifically the standardization of the transactions. These will indeed be described accurately, with a certain format, with relatively standardized information, as for listed products: name of the consideration, maturity, notional... and especially price of the transaction, market value. The "repository" should, in theory, allow the regulator to compare the value of the contract declared by the two counterparties, the Bank and its customer if it provided the information, especially when its market value will evolve. "The regulator can therefore whether permanently did systemic deemed institutions", is a specialist. The debate is being politicized, regulators want in addition to this database can be used to monitor the developments of the underlying - actions - to detect potential abuses.

Greater transparency

Banks, including French, yet large players in derivatives shares, remained relatively indented on the subject. The issue is no less important to them. "It is a place, but it is important for banks because it is the Organization of the market, says a former banker." If all prices are in a database, and that this database is American, you need to know which is the shareholder, what governance, which is its guardianship will be, what is the risk, its liquidity... .

The creation of this House in any case will introduce greater transparency in the market of OTC derivatives. "The creation of this entity will demystify the non-listed derivatives market, which is a good thing, says banker." This market is seen as opaque and often accused of being the origin of the crisis or amplify, as in the case of the Greece. Greater transparency will facilitate the work with the regulators.

The establishment of the database could be also the first step towards a clearing for derivatives actions not listed, theme currently House very dear to the regulators. "This will depend on the clearing houses themselves, says an expert." The bulk of the market for derivatives actions already passes by a countervailing duty, but the rest is a very small market which assumes significant investments, and is the least interesting time. "And in derivatives shares, the issue is less compensation than that of standardization and access to information."