In some instances, rather than mandating certain steps, policymakers might provide proper incentives for risk-reducing steps through capital requirements or disclosure regulations. The recommendations in the Working Group’s report on OTC derivatives, in particular, aim to clarify the legal status of electronic communication, trading, and clearing systems. These recommendations, if implemented, offer a variety of enhanced risk management tools to market participants.
Information flows could be improved, backlogs in the settlement process might be reduced, and the benefits of multilateral netting might be realized. However, it remains for market participants to develop the systems that will best serve markets within the given legal framework. I hope that market participants pursue these opportunities. The risks of trading and settling OTC derivatives can and should be reduced.