After the financial crisis in 2008-09, regulators across the globe set in motion a complete overhaul of the financial markets, with the ultimate goals being transparency in the previously unregulated swaps market, and ensuring that there is adequate collateral backstopping the sector in the event of financial shock. The top items on the list were central counterparty clearing of swaps, the exchange of initial and variation margin among parties to non-cleared swaps, and the reporting of trade data to central repositories, so that market overseers can identify risks that may be building in the system.
While much progress has been made, there is still much work still to be done. Furthermore, the process has not been seamless across jurisdictions, with some nations moving more quickly and aggressively than others. The U.S. has been leading the charge with the finalization and implementation of most of the rules related to the 2010 Dodd-Frank Act. While Europe has followed closely behind with the European Market Infrastructure Regulation (EMIR) and the second installment of the Markets in Financial Instruments Regulation (MiFID II), the multi-jurisdictional nature of the European Union has necessitated a much more involved process.
The cross-border reach of Dodd-Frank and the desire to avoid regulatory arbitrage has prompted international bodies such as the G-20, the International Organization of Securities Commissions (IOSCO) and the Bank for International Settlements (BIS) to work with jurisdictions to harmonize regulations and smooth the transition. Additionally, the International Swaps and Derivatives Association (ISDA), a global financial trade organization representing market participants in the OTC derivatives space, has assumed a key role in this transition.
Robert Pickel, long-time ISDA CEO, has worked to promote and advocate for OTC market participants and work with international regulatory bodies to harmonize regulation across jurisdictions. Pickel spoke with John Lothian News editor-at-large Doug Ashburn about the cross-border issues that are still “works in progress,” an international standard for initial margin currently under development at ISDA, and the status of trade repositories around the world.