Tighter controls sought on credit derivatives
Banks and other financial services firms must tighten up their back office systems and controls in the fast-growing over the counter credit derivatives business, the UK Financial Services Authority has warned.
The FSA said it was concerned at the high number of deals that had not been officially signed off. “In certain cases, transactions [remained] unconfirmed for months,” it said.
Confirmation of deals is important because it means the two sides to a transaction have agreed on all the terms, reducing the likelihood of disputes arising.
“If there is a blow-up in the market a bank could find it is more exposed than it should be because of inadequate paperwork,” said Lorraine Lodge, head of convertible bond research at Nomura. Credit derivatives allow investors to hedge or take exposure to the credit risk inherent in bonds or loans. They have been the fastest growing area of the derivatives market in recent years. The global total rose from $180bn in 1997 to $5,000bn at the end of last year and is expected to rise to $8,200bn by December 2006, according to the British Bankers' Association.
The intervention of the FSA is significant because London is the main centre of global credit derivatives trading with 54 per cent of total trades put through the books of London banks.
Senior SEC officials have called for improvements in the way financial services companies handle OTC derivatives while the International Swaps and Derivatives Association, representing banks and others active in these markets, has a programme to speed up confirmation.
The FSA yesterday made public a letter sent to the banks last week. Gay Huey Evans, head of the FSA's capital markets sector, wrote that credit derivatives were of benefit in the management of risk. “However, we believe that more can be done to reduce operational and settlement risks.”
The FSA plans to monitor industry efforts, she wrote. “The success of industry initiatives would certainly help to allay regulatory concerns. Firms should expect FSA supervisors of UK authorised firms to be taking an increased interest in credit derivative operational performance and risk management controls.”
Karel Engelen, a policy director at ISDA, said: “This market is young and growing quickly. It is difficult [for financial services groups to get everything in place.”
Tighter controls sought on credit derivatives
By Charles Batchelor
Banks and other financial services firms must tighten up their back office systems and controls in the fast-growing over the counter credit derivatives business, the UK Financial Services Authority has warned.
The FSA said it was concerned at the high number of deals that had not been officially signed off. “In certain cases, transactions [remained] unconfirmed for months,” it said.
Confirmation of deals is important because it means the two sides to a transaction have agreed on all the terms, reducing the likelihood of disputes arising.
“If there is a blow-up in the market a bank could find it is more exposed than it should be because of inadequate paperwork,” said Lorraine Lodge, head of convertible bond research at Nomura. Credit derivatives allow investors to hedge or take exposure to the credit risk inherent in bonds or loans. They have been the fastest growing area of the derivatives market in recent years. The global total rose from $180bn in 1997 to $5,000bn at the end of last year and is expected to rise to $8,200bn by December 2006, according to the British Bankers' Association.
The intervention of the FSA is significant because London is the main centre of global credit derivatives trading with 54 per cent of total trades put through the books of London banks.
Senior SEC officials have called for improvements in the way financial services companies handle OTC derivatives while the International Swaps and Derivatives Association, representing banks and others active in these markets, has a programme to speed up confirmation.
The FSA yesterday made public a letter sent to the banks last week. Gay Huey Evans, head of the FSA's capital markets sector, wrote that credit derivatives were of benefit in the management of risk. “However, we believe that more can be done to reduce operational and settlement risks.”
The FSA plans to monitor industry efforts, she wrote. “The success of industry initiatives would certainly help to allay regulatory concerns. Firms should expect FSA supervisors of UK authorised firms to be taking an increased interest in credit derivative operational performance and risk management controls.”
Karel Engelen, a policy director at ISDA, said: “This market is young and growing quickly. It is difficult [for financial services groups] to get everything in place.”
英国：严控信用衍生品交易风险
英国金融服务局(Financial Services Authority)警告说，在衍生品场外交易(OTC)业务快速增长的情况下，银行和其它金融服务公司必须加强其后台系统与控制。
金融服务局表示，它担心的是大量未被正式签字确认的交易。“在某些情况下，交易几个月时间都没有被确认，”该机构说。
交易确认很重要，因为它表示交易双方已就所有条款达成一致，从而减少了产生争议的可能。
“如果市场发生崩溃，银行将发现，由于文书工作不足，它面临风险的程度比它应该做到的更严重，”野村证券(Nomura)可转债研究负责人洛林?洛奇(Lorraine Lodge)说。信用衍生产品允许投资者进行对冲，或者承受债券或贷款本身具有的信贷风险。这些产品是近年来衍生品市场上增长最快的领域。据英国银行家协会(British Bankers’ Association)的数据，到去年年底，全球信贷衍生品交易总额从1997年的1800亿美元增长到去年年底5万亿美元，预计到2006年12月，这一数字将增加到8.2万亿美元。
金融服务局的干预意义重大，因为伦敦是全球信用衍生品交易的主要中心，54%的全球交易经由伦敦银行的账户往来。
此前，美国证交会(SEC)的高级官员曾呼吁，要改进金融服务公司处理场外交易衍生品的方式，而国际掉期与衍生工具协会(International Swaps and Derivatives Association)则制定了一个加快交易确认的计划。该协会代表着活跃在这些市场上的各个银行和其它机构。
金融服务局昨天公开了上周它发给各银行的一封信。金融服务局资本市场部门负责人盖伊?休伊?埃文斯(Gay Huey Evans)在信中写道，信用衍生产品对风险管理有益处，“然而，我们认为，要想减少操作和结算风险，还有更多事情可做。”
国际掉期与衍生工具协会政策主管卡雷尔?恩格伦(Karel Engelen)说：“这个市场很年轻，并且正在快速发展。(金融服务集团)要让全部措施到位很困难。”
