FESE response to CESR Consultation on standardisation and exchange trading of OTC Derivatives

25 August 2010

FESE believes that OTC derivatives should benefit from legal, process and product standardisation to the maximum extent possible, in order to significantly reduce operational risk.

FESE believes that standardisation is desirable and that all products that can be standardised should be standardised: where appropriate, and to the maximum extent possible, OTC derivatives should benefit from legal, process and product standardisation in order to significantly reduce operational risk, facilitate clearing and facilitate reporting of regulatory information to supervisors. On the other hand, it will be crucial to preserve the ability of nonfinancial users to hedge against risk using the instruments they consider appropriate.

With regard to CESR’s assessment of the benefits and limitations of exchange trading of OTC derivatives, FESE broadly agrees with CESR’s analysis – in particular, we believe that benefits highlighted by CESR are particularly relevant for standardised/eligible OTC derivatives and more generally for derivatives eligible for CCP clearing traded on exchange.

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