By PETER EGWUATU

As part of efforts to enhance capital market operations in Africa, the Technical Committee of the International Organisation of Securities Commissions (IOSCO) has recommended migration of trading on Over-The Counter (OTC) derivatives products to the Stock Exchanges in the continent.

This was contained in a report analysis on trading of OTC Derivatives prepared by the Technical Committee’s Task Force on OTC Derivatives Regulation (Task Force), in response to a request from Financial Stability Board to examine increasing exchange and electronic trading of OTC derivative products to the G-20 Leaders’ commitments. This, the analysis stated is inline with stated objectives of improving transparency, mitigating systemic risk, and protecting against market abuse in the derivative markets.

The Committee analyses the benefits, costs, and challenges associated with increasing exchange and electronic trading of over-the-counter (OTC) derivative products.

The report disclosed that it is appropriate to trade standardised derivatives contracts with a suitable degree of liquidity on organised platforms, and that a flexible approach to defining what constitutes an organised platform for derivatives trading would maximise the number of standardised derivative products that can be appropriately traded on these venues.

It identifies characteristics that an organised platform should exhibit in order to fulfil the G-20 Leaders’ objectives, as well as the benefits and costs associated with transitioning trading of derivatives from OTC venues onto organised platforms. It also presents a range of actions that regulators may choose to take to increase organised platform trading of OTC derivatives products.

Hans Hoogervorst, Chairman of IOSCO’s Technical Committee said, “IOSCO believes that it is appropriate to trade standardised derivatives contracts with a suitable degree of liquidity on organised platforms, provided that a flexible approach encompassing a range of entities that would qualify as such platforms is taken by regulators.

“This report provides regulators, regardless of the state of development of their derivatives markets, with an analytical tool that can inform their current and future efforts at addressing the trading of derivatives on organized platforms, and a range of actions which they can take to facilitate this.

“The Task Force has identified a number of benefits that will result from a move to organised platforms, including greater competition, increased participation, better transparency, and improved market oversight|”.