Brokers’ association responds to CDS regulation proposal

Independent industry body the Wholesale Market Brokers Association (WMBA) today warned of the impact of coercing over-the-counter products onto an exchange.

The WMBA represents large inter-dealer brokers and has reviewed the proposals for the regulation of OTC derivatives announced by US treasury secretary Tim Geithner. It has reiterated its support for efforts to clear credit default swaps through a central counterparty, as well as other financial products that are suitable or relevant for clearing.

The association is, however, disappointed that the US treasury department did not acknowledge that most of the severe losses suffered by banks occurred in the structured credit markets and not in the OTC CDS market.

The WMBA is also concerned that some policymakers do not, in its view, acknowledge that making markets more secure can be achieved through the clearing of products through recognised central counterparties. In this way, central counterparties would clear for both OTC and exchange traded products alike. The implication being drawn by some market participants and commentators, is that the only way of achieving regulators’ ambitions is to coerce OTC products onto exchanges, says the WMBA.

The WMBA has its origins in the FEMBA association established over 50 years ago. Its members cover markets in over 30 countries and facilitate the majority of transaction volumes in OTC markets.