It will also reduce the counterparty credit exposures of major participants, which will be reflected in capital requirements for financial institutions. To be safely cleared the contracts that CCPs process must, at a minimum, be sufficiently standardized. And the push to standardize OTC derivatives contracts will have important ancillary benefits for how these markets function.
Standardization will create more liquid, transparent and efficient markets for the contracts. It will also help set the stage for shifting trading onto exchanges or electronic trading platforms. The challenges of the G-20 reforms The G-20 objectives are necessary and appropriate, but achieving them is going to be challenging, for several reasons.