The International Swaps and Derivatives Association on Wednesday issued principles to be applied to rules governing centralized execution of swaps and called for alignment in swap-execution facility rules across national borders.
The ISDA principles include:
- determining the trading liquidity of derivatives contracts through specific criteria;
- creating a flexible trade execution regime to allow contracts to be traded across jurisdictions; and
- building flexible execution mechanisms in all trading venues to take into account the trading liquidity and unique characteristics of swap categories.
ISDA said its principles are in response to the organization's concern that rules applied in different jurisdictions could lead to further fragmentation of global liquidity pools, a news release said.
“ISDA believes it is critical that trade execution regimes work on a cross-border basis to ensure regulatory consistency across jurisdictions, proper oversight, transparency and continued competition,” Scott O'Malia, ISDA's CEO, said in the news release. “ISDA and its members believe that targeted regulatory corrections in the U.S. can improve the utilization of SEFs and enhance the likelihood of coordination with European transaction rules currently under development.”
Most swaps are being shifted to central clearinghouses as part of over-the-counter trading reform agreed to by the Group of 20 nations in 2009. The Commodity Futures Trading Commission approved U.S. rules for swap-execution facilities in August 2013.
The principles are listed in an ISDA paper, “Path Forward for Centralized Execution of Swaps,” on the ISDA website.
